Question

Sky Co. employed Tom Mills in Year 1. Tom earned $4,900 per month and worked the entire year. Assume the Social Security tax rate is 6 percent for the first $110,000 of earnings, and the Medicare tax rate is 1.5 percent. Tom’s federal income tax withholding amount is $910 per month. Use 5.4 percent for the state unemployment tax rate and .6 percent for the federal unemployment tax rate on the first $7,000 of earnings per employee. Required a. Answer the following questions. 1. What is Tom’s net pay per month? 2. What amount does Tom pay monthly in FICA payroll taxes? 3. What is the total payroll tax expense for Sky Co. for January Year 1? February Year 1? March Year 1? December Year 1? b. Assume that instead of $4,900 per month Tom earned $9,700 per month. Answer the following questions. 1. What is Tom’s net pay per month? 2. What amount does Tom pay monthly in FICA payroll taxes? 3. What is the total payroll tax expense for Sky Co. for January Year 1? February Year 1? March Year 1? December Year 1?

Answer 1

Answer:

Given information:

Tom's earnings = $4,900 per month

Social security tax = 6% on first $1,10,000 of earnings

Medicare tax rate = 1.5%

Federal Income Tax = $910

unemployment tax rate(state) = 5.4% on first $7,000 earnings

unemployment tax rate(federal) = 0.6% on first $7,000 earnings.

a)

i)Calculation of Tom's net pay per month:

Particulars	Amount	Amount
Tom's gross earnings		$4,900
Less: deductions
Federal Income Tax	$910
FICA tax - social security tax ($ 4,900*6%=$ 4,900*6/100 = $ 294)	$ 294
FICA tax - Medicare tax ( $ 4,900*1.5%=$ 4,900*1.5/100= $73.5)	$73.5
Total deductions		$1,277.5
Tom's net pay per month		$3,622.5

ii) Calculation of Tom's monthly FICA tax:

Particulars	Amount	Amount
Social security tax ($ 4,900*6%=$ 4,900*6/100 = $ 294)	$ 294
Medicare tax ( $ 4,900*1.5%=$ 4,900*1.5/100= $73.5)	$73.5
Total FICA tax	= $ 294 + $73.5 = $ 367.5	$ 367.5

iii)Calculation of total payroll tax expense for JAN :

Particulars	Amount	Amount
Sky.co Payroll tax exp for jan
Employer FICA tax - social security tax	= $ 4,900*6% =$ 4,900*6/100 = $ 294	$ 294
Employer FICA tax - Medicare tax	=  $ 4,900*1.5% =$ 4,900*1.5/100 = $73.5	$73.5
Employer Unemployment tax
unemployment tax rate(state)	= $ 4,900*5.4% = $ 4,900*5.4/100 = $ 264.6	$ 264.6
unemployment tax rate(federal)	= $ 4,900*0.6% = $ 4,900*0.6/100 = $ 29.4	$ 29.4
Total payroll tax expense for jan	=$ 294+$73.5+$ 264.6+$ 29.4 =$661.5	$661.5

Calculation of total payroll tax expense for FEB :

Particulars	Amount	Amount
Sky.co Payroll tax exp for feb
Employer FICA tax - social security tax	= $ 4,900*6% =$ 4,900*6/100 = $ 294	$ 294
Employer FICA tax - Medicare tax	=  $ 4,900*1.5% =$ 4,900*1.5/100 = $73.5	$73.5
Employer Unemployment tax ( 7000-4900 = 2100)
unemployment tax rate(state)	=$ 2,100*5.4% =$ 2,100*5.4/100 =$ 113.4	$ 113.4
unemployment tax rate(federal)	=$ 2,100*0.6% =$ 2,100*0.6/100 =$ 12.6	$ 12.6
Total payroll tax expense for feb	$294+$73.5+$113.4+$12.6 = $ 493.5	$ 493.5

Calculation of total payroll tax expense for March:

Particulars	Amount	Amount
Sky.co Payroll tax exp for march
Employer FICA tax - social security tax	= $ 4,900*6% =$ 4,900*6/100 = $ 294	$ 294
Employer FICA tax - Medicare tax	=  $ 4,900*1.5% =$ 4,900*1.5/100 = $73.5	$73.5
Total payroll tax expense for march:	$ 294+$73.5 = $ 367.5	$ 367.5

Calculation of total payroll tax expense for December:

Particulars	Amount	Amount
Sky.co Payroll tax exp for dec
Employer FICA tax - social security tax	= $ 4,900*6% =$ 4,900*6/100 = $ 294	$ 294
Employer FICA tax - Medicare tax	=  $ 4,900*1.5% =$ 4,900*1.5/100 = $73.5	$73.5
Total payroll tax expense for dec	$ 294+$73.5 = $ 367.5	$ 367.5

b)

Tom's earnings = $9,700

i)Calculation of Tom's net pay per month:

Particulars	Amount	Amount
Tom's gross earning's		$ 9,700
Less: deductions
Federal Income Tax	$910
FICA tax - social security tax ($9,400*6%=$9,400*6/100=$ 564)	$ 564
FICA tax - Medicare tax ($9,400*1.5%=$9,400*1.5/100 =$ 141)	$ 141
Total deductions		$ 1,615
Tom's net pay per month ($ 9,700-$ 1,615)		$ 8,085

i)Calculation of Tom's net pay dec:

Particulars	Amount	Amount
Tom's gross earnings		$ 9,700
Less : deductions
FICA- Social security tax ($1,10,000-(9,700*11 mon))*6% = $198	$ 198
FICA tax - Medicare tax ($9,700*1.5%=$9,700*1.5/100=$ 145.5)	$ 145.5
Federal Income tax	$ 910
Total	$1,253.5
Tom's net pay dec		$8,446.5

ii)Calculation of Tom's monthly FICA tax:

Particulars	Amount	Amount
Social security tax	= $9,700*6% = $9,700*6/100 =$ 582	$ 582
Medicare tax	=$9,700*1.5% =$9,700*1.5/100 =$ 145.5	$ 145.5
Total Tom's monthly FICA tax		$ 727.5

iii)Calculation of total payroll tax expense for JAN :

Particulars	Amount	Amount
Sky.co Payroll tax exp for JAN
Employer FICA tax - social security tax	= $9,700*6% = $9,700*6/100 =$ 582	$ 582
Employer FICA tax - Medicare tax	=$9,700*1.5% =$9,700*1.5/100 =$ 145.5	$ 145.5
Employer Unemployment tax(7000)
unemployment tax rate(state)	=$7,000*5.4% =$7,000*5.4/100 =$ 378	$ 378
unemployment tax rate(federal)	=$7,000*0.6% =$7,000*0.6/100 =$ 42	$ 42
Total		$ 1,147.5

Calculation of total payroll tax expense for FEB:

Particulars	Amount	Amount
Sky.co Payroll tax exp for FEB
Employer FICA tax - social security tax	= $9,700*6% = $9,700*6/100 =$ 582	$ 582
Employer FICA tax - Medicare tax	=$9,700*1.5% =$9,700*1.5/100 =$ 145.5	$ 145.5
Total		$ 727.5

Calculation of total payroll tax expense for March:

Particulars	Amount	Amount
Sky.co Payroll tax exp for march
Employer FICA tax - social security tax	= $9,700*6% = $9,700*6/100 =$ 582	$ 582
Employer FICA tax - Medicare tax	=$9,700*1.5% =$9,700*1.5/100 =$ 145.5	$ 145.5
Total		$ 727.5

FICA- Social security tax = ($1,10,000-(9,700*11mon))*6% = $198

Calculation of total payroll tax expense for Dec:

Particulars	Amount	Amount
Sky.co Payroll tax exp for Dec
Employer FICA tax - social security tax	=$1,10,000-(9,700*11mon))*6% = $198	$198
Employer FICA tax - Medicare tax	=$9,700*1.5% =$9,700*1.5/100 =$ 145.5	$ 145.5
Total		$ 343.5