Question

CPP 4-1 Complete the Payroll Register & Record the Employee Payroll Journal Entry (#1):

Calculate Social Security and Medicare tax for the below-listed employees of TCLH Industries, a manufacturer of cleaning products. None of the employees files as married filing separately for a year-end tax return.

Zachary Fox does not make any voluntary deductions that impact earnings subject to federal income tax withholding or FICA taxes. He is married, claims two withholding allowances for both federal and state, and his weekly gross pay was $1,162. The current pay period is his first with the company.

Calvin Bell makes a 401(k) retirement plan contribution of 6% of gross pay. He is single, claims two federal withholding allowances and one state withholding allowance, and his weekly gross pay was $417.93. His current year taxable earnings for FICA taxes, prior to the current pay period, are 20,478.57.

David Alexander makes a 401(k) retirement plan contribution of 12% of gross pay. He is single, claims one withholding allowance for both federal and state taxes, and his weekly gross pay was $4,050. His current year taxable earnings for FICA taxes, prior to the current pay period, are $198,450.

Michael Sierra contributes $50 to a flexible spending account each period. He is married, claims four federal withholding allowances and three state withholding allowances, and his weekly gross pay was $2,450. His current year taxable earnings for FICA taxes, prior to the current pay period, are $117,600.

NOTE: For simplicity, all calculations throughout this exercise, both intermediate and final, should be rounded to two decimal places at each calculation.

1: Zachary Fox

Social Security Tax = $
Medicare Tax = $

2: Calvin Bell

Social Security Tax = $
Medicare Tax = $

3: David Alexander

Social Security Tax = $
Medicare Tax = $

4: Michael Sierra

Social Security Tax = $
Medicare Tax = $

Answer 1

Calculation of Social Security Tax and Medicare Tax:

The FICA (for Federal Insurance Contributions Act) tax (also known as Payroll Tax or Self-Employment Tax, depending on your employment status) is your contribution to Social Security and Medicare as a percentage of your salary.

If you're an employee, then you pay one half of this total (probably as a withholding on your paycheck); your employer pays the other half for you (and then gets a deduction for their half on their corporate tax return, since it's an expense - for them it's as if the FICA "half" is an additional piece of salary). If you're self-employed, then you pay the whole total yourself as Self-Employment tax, and then get a tax deduction on half of it as an "adjustment" on your tax return.

We will calculate the above taxes considering the Tax Year 2018.

Employee's Contribution will be calculated as a percentage of Salary as follows:

Social Security: 6.2% on your first $128,400 of wages
Medicare: 1.45% on all your wages

Total FICA: 7.65% maximum

Employer's Contribution will be calculated as a percentage of Salary as follows:

Social Security: 6.2% on your first $128,400 of wages
Medicare: 1.45% on all your wages

Total FICA: 7.65% maximum

Combined Contribution will be calculated as a percentage of Salary as follows:

Social Security: 12.4% on your first $128,400 of wages
Medicare: 2.9% on all your wages

Total FICA: 15.3% maximum

1. Zachary Fox

Current Year Taxable Earnings = $0

Social Security Tax: $0 (12.4% of $0)

Medicare Tax: $0 (2.9% of $0)

Total Tax: $0 (15.3% of $0)

Zachary Fox Contribution (Employee's Half): $0 (7.65% of $0)

2. Calvin Bell

Current Year Taxable Earnings = $20,478.57

Social Security Tax: $2,539 (12.4% of $20,478.57)

Medicare Tax: $594 (2.9% of $20,478.57)

Total Tax: $3,133 (15.3% of $20,478.57)

Calvin Bell Contribution (Employee's Half): $1,567 (7.65% of $20,478.57)

3. David Alaxander

Current Year Taxable Earnings = $198,450

Social Security Tax: $15,922 (12.4% of $128,400)

Medicare Tax: $5,755 (2.9% of $198,450)

Total Tax: $21,677 (15.3% of $141,680)

David Alexander Contribution (Employee's Half): $10,838 (7.65% of $141,680)

4. Michael Sierra

Current Year Taxable Earnings = $117,600

Social Security Tax: $14,582 (12.4% of $117,600)

Medicare Tax: $3,410 (2.9% of $117,600)

Total Tax: $17,993 (15.3% of $117,600)

Michael Sierra Contribution (Employee's Half): $8,996 (7.65% of $117,600)