Question

For each of the following employees, calculate the Social Security tax for the weekly pay period described: NOTE: For simplicity, all calculations throughout this exercise, both intermediate and final, should be rounded to two decimal places at each calculation.

1: Ronald McCarthy earned gross pay of $925. Each period he makes a 401(k) contribution of 6% of gross pay. His current year taxable earnings for Social Security tax, to date, are $29,500.

Total Social Security tax = $

2: Jill Newton earned gross pay of $2,255. She does not make any retirement plan contributions. Her current year taxable earnings for Social Security tax, to date, are $1,26,950.

Total Social Security tax = $

3: George Thomas earned gross pay of $2,575. Each period he contributes 4% of gross pay to a flexible spending account. His current year taxable earnings for Social Security tax, to date, are $103,750.

Total Social Security tax = $

Answer 1

Note: All calculation are done taking into account tax year as 2017.

Social Security tax (SST) rate is 12.4% of wages (Excluding medicare of 2.90%). However, if the wages exceeds $ 127,200 ($128,700 for Tax Year 2018), excess shall be ignored for Social Security Tax.

Half of the Social security tax is paid by employer & remaining half is paid by employee/deducted from salary.

1. Ronald McCarthy:

Weekly Pay = $ 925. Please note that 401(k) contribution reduce your income tax, but they do not reduce your Social Security tax. Accordingly, SST will be applied on Gross pay.

SST = 925*12.40% = $114.70.

Employer & Employee share will be $ 57.35 each.

2.Jill Newton:

Weekly Pay = $ 2,255

Current year taxable earnings for Social Security tax to date excluding this week wages of 2,255 is $ 1,26,950

Hence, total wages comes to $ 129,202. This exceeds the limit of $ 127,200 mentioned above. Accordingly, SST will be applicable on only $ 250 (1,27,200 - 1,26,950)  

SST = 250*12.4% = $ 31

Employer & Employee share will be $ 15.50 each.

3.George Thomas

Weekly Pay = $ 2,575.

Please note that contribution to flexible spending account is deducted while calculating SST.

SST = [2,575 * (1-0.04)] * 12.40% = $ 306.53

Employer & Employee share will be $ 153.26 each.