Test Your Payroll Tax Knowledge

An employee works in Pennsylvania and has a gross income per pay of $2,000. The following deductions to be withheld each pay are listed below. What is the state tax withholding amount for Pennsylvania? (Note: I threw a little curve-ball in this example!)

Medical: $75

Dental: $3.50

Vision: $1.25

401K: 4% Contribution

Many of you may have caught my little curve-ball! If you didn’t, don’t worry - it is all a part of the learning process. For Pennsylvania, 401K contributions are taxable. In others words, the taxation works opposite of the federal, where 401K contributions would reduce the taxable income. Therefore, in the above example only the Medical, Dental, and Vision, (which totals $79.75) would reduce the taxable income. The total taxable amount is $1,920.25 ($2,000 - $79.75). Were you able to use the state tax snapshot to find the state withholding tax rate for Pennsylvania? The state withholding rate for Pennsylvania is a flat rate of 3.07%. Using this information, the calculations are:

Gross: $2,000

Minus: $79.75

Taxable Income: $1.920.25

X .0307

PA State Income Tax = $58.95