a.
Calculate FICA tax (OASDI and HI) to be withheld for each person.
a.
Explanation of Solution
Federal Insurance Contributions Act (FICA) tax: Federal government imposes taxes on the employees’ pay to provide benefits to retired, old age, orphans, and disabled. This tax is also referred to as Social Security tax because the program is devised to benefit the society. FICA tax includes two components, OASDI (Old age, survivors, and disability insurance), and HI (health insurance).
Calculate FICA tax (OASDI and HI) to be withheld for each person.
Table (1)
Note 1: For all the employees, the wages paid till 40th Week is less than the taxable wage limit of $128,400. Hence, full weekly wages of each employee will be taxable for OASDI and HI.
Note 2: The amount received by both the partners is considered as the drawings and not a salary. Thus, FICA taxes are not imposed.
b.
Calculate the amount of the employer’s FICA taxes for the weekly payroll.
b.
Explanation of Solution
Calculate the amount of the employer’s FICA taxes for the weekly payroll.
c.
Calculate the amount of state
c.
Explanation of Solution
State unemployment compensation tax (SUTA): This is the compensation provided to the unemployed people by the state government from the taxes collected from the employers, as a percentage of 5.4% of employees’ payrolls.
Calculate the amount of state unemployment contributions for the weekly payroll.
Step 1: Compute 41st week taxable wages of employee’s for SUTA.
Employee | Designation | Wages ($) | Wages up to 40th week ($) | Taxable wages on 41st week ($) |
Mr. V.H | General office worker | 1,700/month |
15,692.40 |
- |
Ms. A.D | Saleswoman | 15,000/year |
11,538.46 |
- |
Mr. G.B | Stock clerk | 180/week |
7,200 |
180 |
Mr. S.E | Deliveryman | 220/week |
8,800 |
- |
Mr. B.L | Cleaning and maintenance, part-time | 160/week |
6,400 |
160 |
Total | 340 |
Table (2)
Note 1: For Mr. V.H, Ms. A.D, and Mr. S.E, up to 40th week, the wages is crossing the limit of $8,100. So, none of the wages is taxable in 41st week.
Note 2: For Mr. G.B, up to 40th week, the wages of $7,200 is not crossing the limit of $8,100. So, the full wages of $180 is taxable in 41st week.
Note 3: For Mr. B.L, up to 40th week, the wages of $6,400 is not crossing the limit of $8,100. So, the full wages of $160 is taxable in 41st week.
Step 2: Compute the amount of state unemployment contributions for the weekly payroll.
Hence, the amount of state unemployment contributions for the weekly payroll is $10.54.
d.
Calculate net FUTA tax on the payroll.
d.
Explanation of Solution
Federal unemployment compensation tax (FUTA): This is the compensation provided to the unemployed people by the federal government from the taxes collected from the employers, as a percentage of 6.0% on the first $7,000 of employees’ earnings. Federal government refunds the employers with 5.4% on FUTA, if the employers have paid SUTA. So, FUTA would be reduced to 0.6% for those employers.
Calculate net FUTA tax on the payroll.
Step 1: Compute 41st week taxable wages of employee’s for FUTA.
Employee | Designation | Wages ($) | Wages up to 40th week ($) | Taxable wages on 41st week ($) |
Mr. V.H | General office worker | 1,700/month |
15,692.40 |
- |
Ms. A.D | Saleswoman | 15,000/year |
11,538.46 |
- |
Mr. G.B | Stock clerk | 180/week |
7,200 |
- |
Mr. S.E | Deliveryman | 220/week |
8,800 |
- |
Mr. B.L | Cleaning and maintenance, part-time | 160/week |
6,400 |
160 |
Total | 160 |
Table (3)
Note 1: For Mr. V.H, Ms. A.D, Mr. GB, and Mr. S.E, up to 40th week, the wages is crossing the limit of $7,000. So, none of the wages is taxable in 41st week.
Note 3: For Mr. B.L, up to 40th week, the wages of $6,400 is not crossing the limit of $7,000. So, the full wages of $160 is taxable in 41st week.
Step 2: Calculate net FUTA tax.
Hence, the net FUTA tax on the payroll is $0.96.
e.
Calculate the total amount of employer’s payroll taxes for the weekly payroll.
e.
Explanation of Solution
Calculation of employer’s payroll taxes | |
Type of Tax | Tax Amount |
OASDI | $76.92 |
HI | $17.99 |
FUTA | $0.96 |
SUTA | $10.54 |
Total employer’s payroll taxes | $106.41 |
Table (4)
Hence, the total amount of employer’s payroll taxes for the weekly payroll is $106.41.
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Chapter 5 Solutions
PAYROLL ACCOUNTING 2019
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