Chapter 3, Problem 3SSQ

To determine

Calculate the employer’s portion of the FICA taxes, identify whether any of the employees exceed the taxable wage base during the year and if any identify the pay day it would occur.

Explanation of Solution

FICA tax refers to the Federal Insurance Contribution Act tax which is Country U.S law that creates the payroll tax requiring deductions.

FICA imposes two taxes on the employer and the employee. In this, one tax would finances the federal old age, survivors and disability insurance programs which would be called as the OASDI. The other tax would finance the hospital insurance (HI) or the Medicare program.

Calculate the employer’s portion of the FICA taxes.

Employee	Weekly wage	OASDI	HI
Employee TW (1)	$ 225.00	$ 13.95	$ 3.26
Employee BY (2)	$ 300.00	$ 18.60	$ 4.35
Employee HF (3)	$ 175.00	$ 10.85	$ 2.54
Employee CC (4)	$ 1,000.00	$ 62.00	$ 14.50
Employee BM (5)	$ 2,524.00	$ 156.49	$ 36.60
Totals	$ 4,224.00	$ 261.89	$ 61.25

Table (1)

Working note (1):

Calculate the OASDI and HI for Employee TW.

$\begin{array}{c}\text{OASDI for Employee TW}=\left(\text{Weekly wages}\times \text{Tax rate}\right)\\ =\left(\$225.00\times \frac{6.20}{100}\right)\\ =\$13.95\end{array}$

$\begin{array}{c}\text{HI for Employee TW}=\left(\text{Weekly wages}\times \text{Tax rate}\right)\\ =\left(\$225.00\times \frac{1.45}{100}\right)\\ =\$3.26\end{array}$

Working note (2):

Calculate the OASDI and HI for Employee BY.

$\begin{array}{c}\text{OASDI for Employee BY}=\left(\text{Weekly wages}\times \text{Tax rate}\right)\\ =\left(\$300.00\times \frac{6.20}{100}\right)\\ =\$18.60\end{array}$

$\begin{array}{c}\text{HI for Employee T}=\left(\text{Weekly wages}\times \text{Tax rate}\right)\\ =\left(\$300.00\times \frac{1.45}{100}\right)\\ =\$4.35\end{array}$

Working note (3):

Calculate the OASDI and HI for Employee HF.

$\begin{array}{c}\text{OASDI for Employee HF}=\left(\text{Weekly wages}\times \text{Tax rate}\right)\\ =\left(\$175.00\times \frac{6.20}{100}\right)\\ =\$10.85\end{array}$

$\begin{array}{c}\text{HI for Employee HF}=\left(\text{Weekly wages}\times \text{Tax rate}\right)\\ =\left(\$175.00\times \frac{1.45}{100}\right)\\ =\$2.54\end{array}$

Working note (4):

Calculate the OASDI and HI for Employee CC.

$\begin{array}{c}\text{OASDI for Employee CC}=\left(\text{Weekly wages}\times \text{Tax rate}\right)\\ =\left(\$1,000.00\times \frac{6.20}{100}\right)\\ =\$62.00\end{array}$

$\begin{array}{c}\text{HI for Employee CC}=\left(\text{Weekly wages}\times \text{Tax rate}\right)\\ =\left(\$1,000.00\times \frac{1.45}{100}\right)\\ =\$14.50\end{array}$

Working note (5):

Calculate the OASDI and HI for Employee BM

$\begin{array}{c}\text{OASDI for Employee BM}=\left(\text{Weekly wages}\times \text{Tax rate}\right)\\ =\left(\$2,524.00\times \frac{6.20}{100}\right)\\ =\$156.49\end{array}$

$\begin{array}{c}\text{HI for Employee BM}=\left(\text{Weekly wages}\times \text{Tax rate}\right)\\ =\left(\$2,524.00\times \frac{1.45}{100}\right)\\ =\$36.60\end{array}$

Identify whether any of the employees exceed the taxable wage base during the year:

It is identified that Employee BM would exceed the taxable wage base during the year. As Employee BM, would earn an annual wage of $131,248$\left(\$2,524.00\times \text{52 Weeks}\right)$. The wage base for OASDI is $128,400. Thus, Employee BM exceeds the taxable wage during the year.

During the 50^th weekly pay day, Employee BM would have a cumulative wages of $126,200$\left(\$2,524\times 50\text{ weeks}\right)$. But when the payment is made on the 51^st day then Employee BM would exceed the wage base for OASDI taxes:

Particulars	Amount ($)	Amount ($)
Cumulative wages taxes	126,200
Current wage payment	2,524
Total wages		128,724

Table (2)

Thus, the total amount taxable is $2,200 $\left(\$128,400-\$126,200\right)$.