Question

George Clausen (age 48) is employed by Kline Company and is paid an annual salary of $42,640. He has just decided to join the company's Simple Retirement Account (IRA form) and has a few questions. Answer the following for Clausen: Round your answer to the nearest cent. (For wages paid through December 2019 wage-bracket)

a. What is the maximum that he can contribute into this retirement fund?

$13,000 (correct)

b. What would be the company's contribution?

$1279.20 (correct)

Note: For items c. & d. below, round interim amounts to two decimal places. Use these values in subsequent computations then round final answer to two decimal places.

c. What would be his weekly take-home if he contributes the maximum allowed retirement contribution (married, 2 allowances, wage-bracket method, and a 2.3% state income tax on total wages)?

d. What would be his weekly take-home pay without the retirement contribution deduction?

Answer 1

c)
Clausen’s take-home pay with the retirement contribution deducted:
Weekly pay ($42,640 / 52 weeks )	$     820.00
Less:
FICA—OASDI  (820 x 6.2%)	$       50.84
FICA—HI (820 x 1.45%)	$       11.89
FIT Married, 2 allowances ($820.00 – $450.77 = $369.23 taxable  x 12%	$       44.31
State income tax ($820.00 × 0.023)	$       18.86
Retirement contribution ($13,000 ÷ 52)	$     250.00
Take-home pay	$     444.10
d)
Clausen’s take-home pay without the retirement contribution deducted
Weekly pay ($42,640 / 52 weeks )	$     820.00
Less:
FICA—OASDI  (820 x 6.2%)	$       50.84
FICA—HI (820 x 1.45%)	$       11.89
FIT Married, 2 allowances ($820.00 – $450.77 = $369.23 taxable  x 12%	$       44.31
State income tax ($820.00 × 0.023)	$       18.86
Take-home pay	$     694.10