Question

Example 4-12

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).

Mattola Company is giving each of its employees a holiday bonus of $900 on December 13, 20-- (a nonpayday). The company wants each employee's check to be $900. The supplemental tax percent is used.

Nobody has capped for OASDI prior to the bonus check.

a. What will be the gross amount of each bonus if each employee pays a state income tax of 2.8% (besides the other payroll taxes)? You may need to add one penny to the gross so that net bonus exactly equals $900. Round your calculations and final answers to the nearest cent.

$

b. What would the net amount of each bonus check be if the company did not gross-up the bonus? Round your intermediary calculations to the nearest cent.

$

Answer 1

a) Divide desired net pay by 1(representing 100%) minus all tax rates(using decimals) that will be deducted from gross pay. this will give the required gross pay needed give desired net pay.

Take the resulting gross pay and multiply by the respective tax rates to prove net pay. please note if your net pay is off by 0.01 please add 0.01 to gross pay . Use 25% as FIT percentage as supplemental earnings.

b) Gross pay minus deductions=net pay. Use 25% as FIT percentage on supplemental earnings.

a). $1000(1-0.25(supplemental rate)-0.062(OASDI)-0.0145(HI)-0.028(state))=$1549.19

b)$1000-$250-$62-$14.5-$28=$645.5

(0.25*$1000=$250

0.062*$1000=$62

0.0145*$1000=$14.5

0.028*$1000=$28)

Note: In this chapter and all in succeeding work throughout the course unless instructed otherwise. calculate hourly rates and overtime rates as follows:

1. Carry the hourly rate and the overtime rate to 3 decimal places and then round off to 2 decimal places(round the hourly rate   to 2 decimal places before multiplying by one -half to determine the over- time rate)

2. If the third decimal place is 5 or more round to the next higher cent.

3.If the third decimal place is less than 5 or more than 5, simply drop the third decimal place.

Examples: Monthly rate $1,827

weekly rate($1,827*12)/52=$421.615 rounded to $421.62

Hourly rate $421.62/40=$ 10.540 rounded to $10.54

O.T Rate $10.54*15=$15.81