Chapter 11, Problem 3PA

1.

To determine

Calculate the amount that would be reported for the year on each employee’s wage and tax statement for 2015.

Explanation of Solution

Payroll: The total payment that a company is required to pay to its employee for the services received is called as payroll.

Payroll withholding deduction: The amounts which the employer withheld from employees’ gross pay to deduct taxes such as federal income tax, state income tax, local income tax, and social security tax are called payroll withholding deduction.

Employer payroll taxes: The taxes which the employer must pay to the employees with their salaries are called employer payroll taxes. Such taxes are not withheld from employees’ gross earnings but instead they are paid by employer.

Calculate the amount that would be reported for the year on each employee’s wage and tax statement.

Employee	Gross Earnings	Federal Income Tax Withheld	Social Security Tax Withheld	Medicare Tax Withheld
Mr. A	$8,250(1)	$1,416(2)	$495.00(3)	$123.75(4)
Mr. C	$57,600(5)	$9,996(6)	$3,456.00(7)	$864.00(8)
Mr. E	$24,000(9)	$4,776(10)	$1,440.00(11)	$360.00(12)
Mr. H	$6,000(13)	$1,070(14)	$360.00(15)	$90.00(16)
Mr. N	$110,000(17)	$25,850(18)	$6,600.00(19)	$1,650.00(20)
Mr. S	$116,000(21)	$26,000(22)	$6,960.00(23)	$1,740.00(24)
Mr. W	$7,830(25)	$1,314(26)	$469.80(27)	$117.45(28)

Working notes:

(1)

Calculate gross earnings for Mr. A.

$\begin{array}{c}\text{Gross earnings}=\text{Monthly}\text{salary}\times \text{Number of months}\\ =\$5,500\times 1.5\\ =\$8,250\end{array}$

(2)

Calculate federal income tax withheld for Mr. A.

$\begin{array}{c}\text{Federal income tax withheld}=\text{Monthly income tax withheld}\times \text{Number of months}\\ =\$944\times 1.5\\ =\$1,416\end{array}$

 (3)

 Calculate social security taxes withheld for Mr. A

$\begin{array}{c}\text{Social security tax Withheld}=\text{Gross}\text{earnings}\times \text{6\%}\\ =\$8,250\times 6\%\\ =\$495\end{array}$

(4)

Calculate Medicare taxes withheld for Mr. A.

$\begin{array}{c}\text{Medicare tax Withheld}=\text{Gross}\text{earnings}\times 1.5\text{\%}\\ =\$8,250\times 1.5\%\\ =\$123.75\end{array}$

 (5)

Calculate gross earnings for Mr. C.

$\begin{array}{c}\text{Gross earnings}=\text{Monthly}\text{salary}\times \text{Number of months}\\ =\$4,800\times 12\\ =\$57,600\end{array}$

(6)

Calculate federal income tax withheld for Mr. C.

$\begin{array}{c}\text{Federal income tax withheld}=\text{Monthly income tax withheld}\times \text{Number of months}\\ =\$833\times 12\\ =\$9,996\end{array}$

 (7)

 Calculate social security taxes withheld for Mr. C.

$\begin{array}{c}\text{Social security tax Withheld}=\text{Gross}\text{earnings}\times \text{6\%}\\ =\$57,600\times 6\%\\ =\$3,456\end{array}$

(8)

Calculate Medicare taxes withheld for Mr. C.

$\begin{array}{c}\text{Medicare tax Withheld}=\text{Gross}\text{earnings}\times 1.5\text{\%}\\ =\$57,600\times 1.5\%\\ =\$864\end{array}$

(9)

Calculate gross earnings for Mr. E.

$\begin{array}{c}\text{Gross earnings}=\text{Monthly}\text{salary}\times \text{Number of months}\\ =\$8,000\times 3\\ =\$24,000\end{array}$

(10)

Calculate federal income tax withheld for Mr. E.

$\begin{array}{c}\text{Federal income tax withheld}=\text{Monthly income tax withheld}\times \text{Number of months}\\ =\$1,592\times 3\\ =\$4,776\end{array}$

 (11)

 Calculate social security taxes withheld for Mr. E.

$\begin{array}{c}\text{Social security tax Withheld}=\text{Gross}\text{earnings}\times \text{6\%}\\ =\$24,000\times 6\%\\ =\$1,440\end{array}$

(12)

Calculate Medicare taxes withheld for Mr. E.

$\begin{array}{c}\text{Medicare tax Withheld}=\text{Gross}\text{earnings}\times 1.5\text{\%}\\ =\$24,000\times 1.5\%\\ =\$360\end{array}$

(13)

Calculate gross earnings for Mr. H.

$\begin{array}{c}\text{Gross earnings}=\text{Monthly}\text{salary}\times \text{Number of months}\\ =\$6,000\times 1\\ =\$6,000\end{array}$

(14)

Calculate federal income tax withheld for Mr. H.

$\begin{array}{c}\text{Federal income tax withheld}=\text{Monthly income tax withheld}\times \text{Number of months}\\ =\$1,070\times 1\\ =\$1,070\end{array}$

(15)

 Calculate social security taxes withheld for Mr. H.

$\begin{array}{c}\text{Social security tax Withheld}=\text{Gross}\text{earnings}\times \text{6\%}\\ =\$6,000\times 6\%\\ =\$360\end{array}$

(16)

Calculate Medicare taxes withheld for Mr. H.

$\begin{array}{c}\text{Medicare tax Withheld}=\text{Gross}\text{earnings}\times 1.5\text{\%}\\ =\$6,000\times 1.5\%\\ =\$90\end{array}$

(17)

Calculate gross earnings for Mr. N.

$\begin{array}{c}\text{Gross earnings}=\text{Monthly}\text{salary}\times \text{Number of months}\\ =\$10,000\times 11\\ =\$110,000\end{array}$

(18)

Calculate federal income tax withheld for Mr. N.

$\begin{array}{c}\text{Federal income tax withheld}=\text{Monthly income tax withheld}\times \text{Number of months}\\ =\$2,350\times 11\\ =\$25,850\end{array}$

(19)

 Calculate social security taxes withheld for Mr. N.

$\begin{array}{c}\text{Social security tax Withheld}=\text{Gross}\text{earnings}\times \text{6\%}\\ =\$110,000\times 6\%\\ =\$6,600\end{array}$

(20)

Calculate Medicare taxes withheld for Mr. N.

$\begin{array}{c}\text{Medicare tax Withheld}=\text{Gross}\text{earnings}\times 1.5\text{\%}\\ =\$110,000\times 1.5\%\\ =\$1,650\end{array}$

(21)

Calculate gross earnings for Mr. S.

$\begin{array}{c}\text{Gross earnings}=\text{Monthly}\text{salary}\times \text{Number of months}\\ =\$11,600\times 10\\ =\$116,000\end{array}$

(22)

Calculate federal income tax withheld for Mr. S.

$\begin{array}{c}\text{Federal income tax withheld}=\text{Monthly income tax withheld}\times \text{Number of months}\\ =\$2,600\times 10\\ =\$26,000\end{array}$

(23)

 Calculate social security taxes withheld for Mr. S.

$\begin{array}{c}\text{Social security tax Withheld}=\text{Gross}\text{earnings}\times \text{6\%}\\ =\$116,000\times 6\%\\ =\$6,960\end{array}$

(24)

Calculate Medicare taxes withheld for Mr. S.

$\begin{array}{c}\text{Medicare tax Withheld}=\text{Gross}\text{earnings}\times 1.5\text{\%}\\ =\$116,000\times 1.5\%\\ =\$1,740\end{array}$

(25)

Calculate gross earnings for Mr. W.

$\begin{array}{c}\text{Gross earnings}=\text{Monthly}\text{salary}\times \text{Number of months}\\ =\$5,220\times 1.5\\ =\$7,830\end{array}$

(26)

Calculate federal income tax withheld for Mr. W.

$\begin{array}{c}\text{Federal income tax withheld}=\text{Monthly income tax withheld}\times \text{Number of months}\\ =\$876\times 1.5\\ =\$1,314\end{array}$

(27)

 Calculate social security taxes withheld for Mr. W.

$\begin{array}{c}\text{Social security tax Withheld}=\text{Gross}\text{earnings}\times \text{6\%}\\ =\$7,830\times 6\%\\ =\$469.80\end{array}$

(28)

Calculate Medicare taxes withheld for Mr. W.

$\begin{array}{c}\text{Medicare tax Withheld}=\text{Gross}\text{earnings}\times 1.5\text{\%}\\ =\$7,830\times 1.5\%\\ =\$117.45\end{array}$

2.

To determine

Calculate the following employer payroll taxes for the year.

Explanation of Solution

Calculate the following employer payroll taxes for the year.

(a)

Calculate social security tax.

$\begin{array}{c}\text{Social security tax }=\text{Sum}\text{of}\text{Social}\text{security}\text{tax}\text{withheld}\text{for all employees}\\ =\$495+\$3,456+\$1,440+\$360+\$6,600+\$6,960+\$469.80\\ =\$19,780.80\end{array}$

(b)

Calculate Medicare tax.

$\begin{array}{c}\text{Medicare tax }=\text{Sum}\text{of}\text{Medicare}\text{tax}\text{withheld}\text{for all employees}\\ =\$123.75+\$864+\$360+\$90+\$1,650+\$1,740+\$117.45\\ =\$4,945.20\end{array}$

(c)

Calculate State unemployment tax.

$\begin{array}{c}\text{State Unemployment tax}=5.4\%onfirst\$10,000ofeachemployee\text{'}searnings\\ =5.4\%\times \left(\begin{array}{l}\$8,250+\$10,000+\$10,000\\ +\$6,000+\$10,000+\$10,000+\$7,830\end{array}\right)\\ =5.4\%\times \$62,080\\ =\$3,352.32\end{array}$

(d)

Calculate Federal unemployment tax.

$\begin{array}{c}\text{Federal Unemployment tax}=0.8\%onfirst\$10,000ofeachemployee\text{'}searnings\\ =0.8\%\times \left(\begin{array}{l}\$8,250+\$10,000+\$10,000\\ +\$6,000+\$10,000+\$10,000+\$7,830\end{array}\right)\\ =0.8\%\times \$62,080\\ =\$496.64\end{array}$

(e)

Calculate total payroll tax expense.

$\begin{array}{c}\text{Total payroll tax expense}=\left(\begin{array}{l}\text{Social}\text{security}\text{tax}+\text{Medicare}\text{tax }\\ \text{+ State Unemployment tax }\\ \text{+ Federal unemployment tax}\end{array}\right)\\ \text{= \$19,780}\text{.80 +}\text{\$4,945}\text{.20 +}\text{\$3,352}\text{.32 +}\text{\$496}\text{.64}\\ \text{=}\text{\$28,574}\text{.96}\end{array}$