Example 4-12 GROSSING-UP. Cotter Company wants to award a $4,000 bonus to Donna D'Amico. In addition, it wants the net bonus payment to equal $4,000. Assuming D'Amico is still under the OASDI/FICA limit, the calculation would be: A. $4,000 1 – 0.22 (Supplemental W/H rate) – 0.062 (OASDI) – 0.0145 (HI) B. $4,000 = $5,685.86 grossed-up bonus 0.7035 C. Gross bonus amount $5,685.85* Federal income tax withheld 1,250.89 OASDI tax withheld 352.52 HI tax withheld 82.44 Take-home bonus check $4,000.00 If state or local taxes apply, they must also be included in the formula. *Need to subtract $0.01 from $5,685.86 in order to arrive at $4,000.00 (due to rounding). Damerly Company (a Utah employer) wants to give a holiday bonus check of $250 to each employee. Since it wants the check amount to be $250, it will need to gross-up the amount of the bonus. Calculate the withholding taxes and the gross amount of the bonus to be made to John Rolen if his cumulative earnings for the year are $46,910. Besides being subject to social security taxes and federal income tax (supplemental rate), a 4.95% Utah income tax must be withheld on supplemental payments. Enter deductions beginning with a minus sign (-). You may need to adjust by a penny (subtract or add) to the gross amount to get net pay to calculate exactly to $250.00. Round your calculations and final answers to the nearest cent. Gross bonus amount $fill in the blank 1 Federal income tax withheld fill in the blank 2

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Example 4-12

GROSSING-UP. Cotter Company wants to award a $4,000 bonus to Donna D'Amico. In addition, it wants the net bonus payment to equal $4,000. Assuming D'Amico is still under the OASDI/FICA limit, the calculation would be:

A.	$4,000
1 – 0.22 (Supplemental W/H rate) – 0.062 (OASDI) – 0.0145 (HI)

B.	$4,000	= $5,685.86 grossed-up bonus
0.7035

C.	Gross bonus amount	$5,685.85*
	Federal income tax withheld	1,250.89
	OASDI tax withheld	352.52
	HI tax withheld	82.44
	Take-home bonus check	$4,000.00

If state or local taxes apply, they must also be included in the formula.

*Need to subtract $0.01 from $5,685.86 in order to arrive at $4,000.00 (due to rounding).

Damerly Company (a Utah employer) wants to give a holiday bonus check of $250 to each employee. Since it wants the check amount to be $250, it will need to gross-up the amount of the bonus. Calculate the withholding taxes and the gross amount of the bonus to be made to John Rolen if his cumulative earnings for the year are $46,910. Besides being subject to social security taxes and federal income tax (supplemental rate), a 4.95% Utah income tax must be withheld on supplemental payments.

Enter deductions beginning with a minus sign (-). You may need to adjust by a penny (subtract or add) to the gross amount to get net pay to calculate exactly to $250.00. Round your calculations and final answers to the nearest cent.

Gross bonus amount	$fill in the blank 1
Federal income tax withheld	fill in the blank 2
OASDI tax withheld	fill in the blank 3
HI tax withheld	fill in the blank 4
Utah income tax withheld	fill in the blank 5
Take-home bonus check	$fill in the blank 6

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