Question

In: Accounting

Calculation of Social Security Tax and Marginal, Average and Effective Tax Rates on Social Security Taxes...

Calculation of Social Security Tax and Marginal, Average and Effective Tax Rates on Social Security Taxes (LO. 1)

Rory earns $70,000 per year as a college professor. Latesia is a marketing executive with a salary of $140,000. With respect to the Social Security tax (OASDI: 6.2%; MHI: 1.45%) calculate the following:

(Hint: OASDI 6.2% tax is only on max of $128,400 for the year.)

When required, round the total taxes to two decimal places.

a.

Rory's total FICA taxes:	$
Latesia's total FICA taxes:	$

Rounding instructions for parts (b), (c), and (d): When required, round the tax rates to two decimal places.

b.

Rory's marginal tax rate:	%
Latesia's marginal tax rate:	%

c.

Rory's average tax rate:	%
Latesia's average tax rate:	%

d.

Rory's effective tax rate:	%
Latesia's effective tax rate:	%

Expert Solution

a) For the year 2018, the employee's portion of the FICA tax is 7.65% (the Social Security tax of 6.2% plus the Medicare tax of 1.45%) on the first $128,400 of an employee's salary and wages. On an employee's salary and/or wages in excess of $128,400 the employee's portion of the FICA tax is 1.45%

Rory's total FICA taxes:	$0
Latesia's total FICA taxes:	$9,990.80^*

^* for $128,400 @ 7.65% and remaining $11,600 @ 1.45%

b)

MARGINAL TAX	TAX RANGE	TAX
10%	$0-$9,525	10% of your taxable income
12%	$9,525-$38,700	$952.50 + 12% of the amount over $9,525
22%	$38,700-$82,500	$4,453.50 + 22% of the amount over $38,700
24%	$82,500-$157,500	$14,089.50 + 24% of the amount over $82,500

Rory's marginal tax rate:	22%
Latesia's marginal tax rate:	24%

c)total taxes to be paid by Rory $4,453.50+ ($70,000-$38,700)* 22% = $11,339.50

Average rate $11,339.50/$70,000 = 16.20%

total taxes to be paid by Latesia $14,089.50 + ($140,000-$82,500)* 24% = $27,889.50

Average rate $27,889.50/$140,000 = 19.92%

Rory's average tax rate:	16.20%
Latesia's average tax rate:	19.92%

d) Effective tax rate is total tax / taxable income

total tax = income tax + FICA

Rory's effective tax rate:	16.20%
Latesia's effective tax rate:	27.05%

ekkarill92 answered 2 years ago

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