Question

Note: In this chapter and in all succeeding work throughout the course, unless instructed otherwise, use the following rates, ceiling, and maximum taxes.

Employee and Employer OASDI:	6.20%	$127,200	$7,886.40
Employee* and Employer HI:	1.45%	No limit	No maximum
Self-employed OASDI:	12.4%	$127,200	$15,772.80
Self-employed HI:	2.9%	No limit	No maximum

1.	Carry the hourly rate and the overtime rate to 3 decimal places and then round off to 2 decimal places (round the hourly rate to 2 decimal places before multiplying by one and one-half to determine the over-time rate).
2.	If the third decimal place is 5 or more, round to the next higher cent.
3.	If the third decimal place is less than 5, simply drop the third decimal place.
	Examples:	Monthly rate $1,827 Weekly rate ($1,827 × 12)/52 = $421.615 rounded to $421.62 Hourly rate $421.62/40 = $10.540 rounded to $10.54 O.T. rate $10.54 × 1.5 = $15.81

Also, use the minimum hourly wage of $7.25 in solving these problems and all that follow.

*Employee HI: Plus an additional 0.9% on wages over $200,000. Also applicable to self-employed.

Example 3-6

Ned Fromton, an employer, files his employment tax return 20 days after the due date of the return. The amount of tax that was unpaid is $6,000. Fromton's penalty is:
	Failure to file (5% × $6,000) = $300 Note: Any fraction of a month counts as a whole month.

Example 3-7

Yeld Company failed to pay its employment taxes of $5,000 for March (due April 16) until May 21. The failure to pay penalty assessed against Yeld Company is:

Failure to Pay Tax ($5,000 × 0.5% × 2)	=		$50.00
Interest on Taxes Due ($5,000 × 0.04 × 35/365)	=		19.18
Total Penalty	=		$69.18

Note: In addition, a penalty for failure to make a timely deposit will also be assessed.

Vulcan Company is a monthly depositor whose tax liability for March 2018 is $2,710.

1. What is the due date for the deposit of these taxes?
April 16

2. Assume that no deposit was made until April 30. Compute the following penalties. Assume a 365-day year in your computations. Round your answers to the nearest cent.

a.	Penalty for failure to make timely deposit.	$_________
b.	Penalty for failure to fully pay tax.	$_________
c.	Interest on taxes due and unpaid (assume a 4% interest rate).	$_________
d.	Total penalty imposed.	$_________

_

Answer 1

1.If you reported taxes of $50,000 or less during the lookback period, you're a monthly schedule depositor, and you generally must deposit your employment taxes on payments made during a given month on or before the 15th day of the following month.

you must deposit taxes on payments made in March by April 15. If the 15th of any calendar month falls on a Saturday, Sunday, or legal holiday , the deposit is due by the next business day. A business day is any day other than a Saturday, Sunday, or legal holiday.In 2018,15th April is a Sunday, so due date is taken as 16th April.

2.The Failure to deposit penalty structure has four tiers, with the penalty amount increasing over time.

2% of the unpaid deposit for payments that are 1 to 5 days late

5% for tax payments that are 6-15 days late

10% for deposits that are more than 15 days late or made within ten days of receiving the first IRS notice requesting a tax payment

15% for deposits not received within ten days after receiving the first IRS notice demanding payment.

No deposit was made until April 30,means deposit is delayed by 14 days(apr 16 to 30)

Penalty for failure to make timely deposit=2710×5%=135.5

Penalty for late payment. The failure-to-pay penalty is generally 0.5 percent per month of your unpaid taxes. It applies for each month or part of a month your taxes remain unpaid and starts accruing the day after taxes are due. It can build up to as much as 25 percent of your unpaid taxes.

Penalty for failure to fully pay tax.=2710×0.5%=13.55

Interest on taxes due and unpaid (assume a 4% interest rate)=($2710× 0.04 × 14/365)=4.16