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 $100 on December 13, 20-- (a nonpayday). The company wants each employee's check to be $100. 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 is exactly $100.00. 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.
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 $100 on December 13, 20-- (a nonpayday). The company wants each employee's check to be $100. 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 is exactly $100.00. 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.
$
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