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Assume that social security taxes are payable at a 6% rate on the first $100,000 of...

Assume that social security taxes are payable at a 6% rate on the first $100,000 of earnings and Medicare taxes are payable at a 1.5% rate with no maximum earnings, and that federal and state unemployment compensation taxes total 4.6% on the first $7,000 of earnings. If an employee, Dan, earns $2,500 for the current week and Dan's year-to-date earnings before this week were $6,800, what is the total payroll taxes related to the current week?

Please show work to help me understand the material.

Solutions

Expert Solution

Social security taxes rate = 6%

Medicare taxes rate = 1.5%

Federal and state unemployment compensation taxes rate = 4.6% on the first $7,000 of earnings

Current week earnings = $2,500

Dan's year-to-date earnings before this week = $6,800

Social security taxes = Current week earnings x Social security taxes rate

= 2,500 x 6%

= $150

Medicare taxes =  Current week earnings x Medicare taxes rate

= 2,500 x 1.5%

= $37.50

Current week's earnings subject to Federal and state unemployment compensation taxes = Maximum earnings subject to Federal and state unemployment compensation taxes - Year-to-date earnings before this week

= 7,000 - 6,800

= $200

Federal and state unemployment compensation taxes = Current week's earnings subject to Federal and state unemployment compensation taxes x Federal and state unemployment compensation taxes rate

= 200 x 4.6%

= $9.20

Total payroll taxes related to the current week = Social security taxes + Medicare taxes + Federal and state unemployment compensation taxes

= 150 + 37.50 + 9.20

= $196.70

ekkarill92 answered 2 years ago
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