It's the same as why you wouldn't measure your weight in ounces, but neither would you weigh something very light in pounds - you want a convenient number which is easy to interpret. PC is short for parsec and it's a unit of measurement equal to 3,000,000,000,000,000,000 cm!
Take your annual covered earnings (the earnings on which you pay Social Security payroll taxes), multiply it by that year's index factor and you will obtain your indexed wage for each year you have worked. Next, add up all these indexed wages and divide them by 35 to determine your average wage.
Developing the Lesson. Direct students to Tax Tutorial-Payroll Taxes and Federal Income Tax Withholding. Explain that employers use the Social Security tax rate (6.2 percent), the Medicare tax rate (1.45 percent), and the information on Form W-4 to compute the amount to withhold from employee pay. Explain how employees pay Social Security and Medicare taxes. ( 2 The employer withholds payroll taxes from employee pay.). 3  Explain how the employer knows how much income tax to withhold. ( 4 The employer refers to Form W-4 to calculate the income tax withholding.).