Chapter 9, Problem 11BE

a. 1

To determine

Identify Person J’s net pay per month if gross earnings are $5,200.

Explanation of Solution

Net pay is the amount which is received by the employee from the employer after deductions (Withholdings) made from the gross earnings.  Net pay is otherwise called as the take-home pay.

Calculate Person T’s net pay:

Particulars	Amount ($)	Amount ($)
Gross Earnings		$5,200.00
Deductions:
Federal Income Tax	800.00
FICA Tax – Social security tax (1)	312.00
FICA Tax – Medicare (2)	78.00
Total Deductions		(1,190.00)
Net Pay		4,010.00

Table (1)

Calculate the amount of social security tax:

$\begin{array}{c}\text{Social security tax}=\text{Gross earnings}\times \text{Tax rate}\\ =\$5,200\times 6\%\\ =\$312.00\end{array}$ (1)

Calculate the amount of Medicare tax:

$\begin{array}{c}\text{Medicare tax}=\text{Gross earnings}\times \text{Tax rate}\\ =\$5,200\times 1.5\%\\ =\$78.00\end{array}$ (2)

Hence, the net pay of Person J is $4,010.00.

a. 2

To determine

Identify the amount of FICA tax paid by Person J monthly.

Explanation of Solution

Federal Insurance Contributions Act (FICA) tax: Federal government imposes taxes on the employees’ pay to provide benefits to retired, old age, orphans, and disabled. This tax is also referred to as Social Security tax because the program is devised to benefit the society. The two components of this tax are:

• Social Security tax
• Medicare tax

Calculate the amount of FICA tax paid:

$\begin{array}{c}\text{Total monthly tax}=\text{Social security tax}+\text{Medicare tax}\\ =\$312.00+\$78.00\\ =\$390.00\end{array}$

Thus, the amount of FICA tax is $390.00 is paid monthly by Person J.

a. 3

To determine

Identify the amount of total payroll tax expense for Corporation C for the months January, February, March, and December.

Explanation of Solution

Payroll tax:

Payroll tax refers to the tax that are equally contributed by employees and employer based on the salary and wages of an employee. Payroll tax includes taxes like federal tax, local income tax, state tax, social security tax and federal and state unemployment tax.

Calculate the payroll tax expenses for January 1.

Particulars	Amount ($)	Amount ($)
Employer FICA Social Security tax (1)	312.00
Employer FICA Medicare tax (2)	78.00	390.00
Employer unemployment tax
Federal tax @ 0.6% (3)	31.20
State tax @ 5.4% (4)	280.80
Total unemployment tax		312.00
Total employer payroll tax		702.00

Table (2)

Calculate the amount of employer unemployment tax.

$\begin{array}{c}\text{Federal tax}=\text{Gross earnings}\times \text{Tax rate}\\ =\text{\$5,200}\times \text{0}\text{.6\%}\\ =\$31.2\end{array}$ (3)

$\begin{array}{c}\text{State tax}=\text{Gross earnings}\times \text{Tax rate}\\ =\$5,100\times 5.4\%\\ =\$255.00\end{array}$ (4)

Thus, the total employer payroll tax expense for the month January is $702.00.

Calculate the payroll tax expenses for February 1.

Particulars	Amount ($)	Amount ($)
Employer FICA Social Security tax (1)	312.00
Employer FICA Medicare tax (2)	78.00	390.00
Employer unemployment tax
Federal tax @ 0.6% (5)	10.80
State tax @ 5.4% (6)	97.20
Total unemployment tax		108.00
Total employer payroll tax		498.00

Table (3)

Calculate the amount of employer unemployment tax.

$\begin{array}{c}\text{Federal unemployment tax}=\text{Gross earnings}\times \text{Tax rate}\\ =\text{\$1,800}\left(\$7,000-\$5,200\right)\times \text{0}\text{.6\%}\\ =\$10.80\end{array}$ (5)

$\begin{array}{c}\text{State unemployment tax}=\text{Gross earnings}\times \text{Tax rate}\\ =\$1,800\left(\$7,000-\$5,200\right)\times 5.4\%\\ =\$97.20\end{array}$ (6)

Thus, the total employer payroll tax expense for the month February is $496.50.

Calculate the payroll tax expenses for March 1.

Particulars	Amount ($)	Amount ($)
Employer FICA Social Security tax (1)	312.00
Employer FICA Medicare tax (2)	78.00
Total employer payroll tax		390.00

Table (4)

Thus, the total employer payroll tax expense for the month March is $390.00.

Calculate the payroll tax expenses for December 1.

Particulars	Amount ($)	Amount ($)
Employer FICA Social Security tax (1)	312.00
Employer FICA Medicare tax (2)	78.00
Total employer payroll tax		390.00

Table (5)

Thus, the total employer payroll tax expense for the month December is $390.00.

b. 1

To determine

Identify Person J’s net pay per month if gross earnings are $10,000.

Explanation of Solution

Net pay is the amount which is received by the employee from the employer after deductions (Withholdings) made from the gross earnings.  Net pay is otherwise called as the take-home pay.

Calculate Person T’s net pay for January to November:

Particulars	Amount ($)	Amount ($)
Gross Earnings		10,000
Deductions:
Federal Income Tax	800.00
FICA Tax – Social security tax (7)	600.00
FICA Tax – Medicare (8)	150.00
Total Deductions		(1,550.00)
Net Pay		8,450.00

Table (6)

Calculate the amount of social security tax:

$\begin{array}{c}\text{Social security tax}=\text{Gross earnings}\times \text{Tax rate}\\ =\$10,000\times 6\%\\ =\$600.00\end{array}$ (7)

Calculate the amount of Medicare tax:

$\begin{array}{c}\text{Medicare tax}=\text{Gross earnings}\times \text{Tax rate}\\ =\$10,000\times 1.5\%\\ =\$150.00\end{array}$ (8)

Hence, the net pay of Person J is $8,450.00 for the month January to November.

Calculate Person T’s net pay for December:

Particulars	Amount ($)	Amount ($)
Gross Earnings		10,000
Deductions:
Federal Income Tax	800.00
FICA Tax – Social security tax (9)	0
FICA Tax – Medicare (10)	150.00
Total Deductions		(950.00)
Net Pay		9,050.00

Table (7)

Calculate the amount of social security tax:

$\begin{array}{c}\text{Social security tax}=\text{Total wages at the end of November}\times \text{Tax rate}\\ =\left(\$110,000-\$110,000\right)\times 6\%\\ =\$0\end{array}$ (9)

Calculate the amount of Medicare tax:

$\begin{array}{c}\text{Medicare tax}=\text{Gross earnings}\times \text{Tax rate}\\ =\$10,000\times 1.5\%\\ =\$150.00\end{array}$ (10)

Hence, the net pay of Person T is $9,050.00 for the month January to November.

b. 2

To determine

Identify the amount of FICA tax paid by Person T monthly.

Explanation of Solution

Federal Insurance Contributions Act (FICA) tax: Federal government imposes taxes on the employees’ pay to provide benefits to retired, old age, orphans, and disabled. This tax is also referred to as Social Security tax because the program is devised to benefit the society. The two components of this tax are:

• Social Security tax
• Medicare tax

Calculate the amount of FICA tax paid for January to November:

$\begin{array}{c}\text{Total monthly tax}=\text{Social security tax}+\text{Medicare tax}\\ =\$600.00(7)+\$150.00(8)\\ =\$750.00\end{array}$

Thus, the amount of FICA tax is $750.00 is paid for January to December by Person J.

Calculate the amount of FICA tax paid for December:

$\begin{array}{c}\text{Total monthly tax}=\text{Social security tax}+\text{Medicare tax}\\ =\$0(9)+\$150.00(10)\\ =\$150.00\end{array}$

Thus, the amount of FICA tax is $150.00 is paid for December by Person J.

b. 3

To determine

Identify the amount of total payroll tax expense for Corporation S for the months January, February, March, and December.

Explanation of Solution

Payroll tax:

Payroll tax refers to the tax that are equally contributed by employees and employer based on the salary and wages of an employee. Payroll tax includes taxes like federal tax, local income tax, state tax, social security tax and federal and state unemployment tax.

Calculate the payroll tax expenses for January 1.

Particulars	Amount ($)	Amount ($)
Employer FICA Social Security tax (7)	600.00
Employer FICA Medicare tax (8)	150.00	750.00
Employer unemployment tax
Federal tax @ 0.6% (11)	42.00
State tax @ 5.4% (12)	378.00
Total unemployment tax		420.00
Total employer payroll tax		1,170.00

Table (8)

Calculate the amount of employer unemployment tax.

$\begin{array}{c}\text{Federal tax}=\left(\begin{array}{l}\text{Applicable amount for }\\ \text{unemployment tax}\end{array}\right)\times \left(\text{Tax rate}\right)\\ =\text{\$7,000}\times \text{0}\text{.6\%}\\ =\$42.00\end{array}$ (11)

$\begin{array}{c}\text{State tax}=\left(\begin{array}{l}\text{Applicable amount for }\\ \text{unemployment tax}\end{array}\right)\times \left(\text{Tax rate}\right)\\ =\text{\$7,000}\times 5.4\text{\%}\\ =\$378.00\end{array}$ (12)

Thus, the total employer payroll tax expense for the month January is $1,170.00.

Calculate the payroll tax expenses for February 1.

Particulars	Amount ($)	Amount ($)
Employer FICA Social Security tax (7)	600.00
Employer FICA Medicare tax (8)	150.00
Total employer payroll tax		750.00

Table (9)

Thus, the total employer payroll tax expense for the month February is $750.00.

Calculate the payroll tax expenses for March 1.

Particulars	Amount ($)	Amount ($)
Employer FICA Social Security tax (7)	600.00
Employer FICA Medicare tax (8)	150.00
Total employer payroll tax		750.00

Table (10)

Thus, the total employer payroll tax expense for the month March is $750.00.

Calculate the payroll tax expenses for December 1.

Particulars	Amount ($)	Amount ($)
Employer FICA Social Security tax (13)	0
Employer FICA Medicare tax (8)	150.00
Total employer payroll tax		150.00

Table (11)

Calculate the Social security tax for December:

$\begin{array}{c}\text{Social Security tax}=\left[\text{Limited amount}-\left(\text{Gross earnings}\times \text{Number of months}\right)\right]\times \text{Tax rate}\\ =\left[\$110,000-\left(\$10,000\times 11\right)\right]\times 6\%\\ =\left[\$110,000-\$110,000\right]\times 6\%\\ =\$0\end{array}$ (13)

Thus, the total employer payroll tax expense for the month December is $150.00.