Question

Karen and Katie are looking at the company's health care options and trying to determine how much their net pay will decrease if they sign up for the qualified cafeteria plan offered by the company. Karen, a married woman with four exemptions, earns $2,000 per biweekly payroll. Katie, a single woman with one exemption, also earns $2,000 per biweekly payroll. The biweekly employee contribution to health care that would be subject to the cafeteria plan is $100. Compute the net pay for Karen and Katie. Assume that they are subject to federal income tax (using the wage-bracket method) and FICA taxes and have no other deductions from their pay. When wages fall on the end of a bracket, use the lower end. Use the Wage Bracket Method Tables for Income Tax Withholding in Appendix C. (Round your answers to 2 decimal places.)

The tax year on the appendix c is 2016

Answer 1

The above question can be answered in the following steps:

Karen's taxable income if she declines to participate in Cafeteria plan is $2,000 wages.

Karen's taxable income if she participates in the Cafeteria plan is = $2,000 - $100 (cafeteria plan contribution) = $1,900 Taxable income.

Similarly we can find for Katie:

Katie's taxable income if she declines to participate in Cafeteria plan is $2,000 wages.

And Katie's taxable incomee if she participates in Cafeteria plan = $2,000 - $100 (cafeteria plan contribution) = $1,900 Taxable income.

Subject to Federal Income tax(Wage Bracket Method) and FICA taxes:

Karen's net pay if she declines to participate in the Cafeterian Plan:

= $2,000 (wages) - $127 (federal income tax) - $124 (social security tax) - 29 (Medicare tax) = $1,720 (Net Pay)

Karen's Net pay if she participates in the Cafeteria Plan:

= $2,000 - $100 (contribution to cafeteria plan) - $112 (federal incomee tax) - $124(social security tax)- 29 (Medicare tax) = $1,635 (net pay)

Katie's net pay if she declines to participate in cafeteria plan:

$2,000 - $284 (federal income tax) - $124(social security tax)- $29(Medicare tax) = $1,563 (Net Pay)

Katie's net pay if she participates in the cafeteria plan:

$2,000 - $100(contribution to cafeteria plan) - $259(Federal Incomee Tax) - $124(Social Security Tax) -$29(Medicare tax) = $1,488 (Net Pay)