Question

GROSSING-UP. Cotter Company wants to award a $4,000 bonus to Donna D'Amico. In addition, it wants the net bonus payment to equal $4,000. Assuming D'Amico is still under the OASDI/FICA limit, the calculation would be:

A.	$4,000
	1 – 0.22 (Supplemental W/H rate) – 0.062 (OASDI) – 0.0145 (HI)

B.	$4,000	= $5,685.86 grossed-up bonus
	0.7035

C.	Gross bonus amount	$5,685.85*
	Federal income tax withheld	1,250.89
	OASDI tax withheld	352.52
	HI tax withheld	82.44
	Take-home bonus check	$4,000.00

If state or local taxes apply, they must also be included in the formula.

*Need to subtract $0.01 from $5,685.86 in order to arrive at $4,000.00 (due to rounding).

Damerly Company (a Utah employer) wants to give a holiday bonus check of $200 to each employee. Since it wants the check amount to be $200, it will need to gross-up the amount of the bonus. Calculate the withholding taxes and the gross amount of the bonus to be made to John Rolen if his cumulative earnings for the year are $46,910. Besides being subject to social security taxes and federal income tax (supplemental rate), a 4.95% Utah income tax must be withheld on supplemental payments.

Enter deductions beginning with a minus sign (-). You may need to adjust by a penny (subtract or add) to the gross amount to get net pay to calculate exactly to $200.00. Round your calculations and final answers to the nearest cent.

Gross bonus amount	$
Federal income tax withheld
OASDI tax withheld
HI tax withheld
Utah income tax withheld
Take-home bonus check	$

Answer 1

Working Note -

* Gross Pay Computation = $ 250/(1-0.22-0.062-0.0145-0.0495)

(reverse calculation) = $ 382.26

Increased by $ 0.01 to arrive accurate figure of bonus with $ 250.00

Final figure after adjustement = $ 382.27

Tax rate are given as :

(Supplemental W/H rate) – 0.22

(OASDI) – 0.062

(HI) -0.0145

(Utah income tax withheld) - 0.0495

Terms-

Gross Pay - Gross pay is a payment made to an employee for completion of work allocated by by the company. Gross pay computed by using normal hours worked by the employee with hourly wage rate.

Income tax withholding - Under federal law, The employer is required to withhold a cetain amount from the total earnings of the employer. The amounts that are withheld by the employer are applied to the payment of the employee's federal income tax.

Gross Up Amount = Intended Payment

1-Applicable taxes (Federal Income tax and state tax)