For the Critical Thinking problems, use the following steps to compute the gross-up amount: 1. Compute tax
Question:
For the Critical Thinking problems, use the following steps to compute the gross-up amount:
1. Compute tax rate: The tax rate on bonuses is 22 percent. Social Security (6.2 percent) and Medicare taxes (1.45 percent) must be added to this rate. For bonuses, the total tax rate equals 22% + 6.2% + 1.45%, or 29.65%.
2. Subtract 100 percent – tax rate percentage to get the net tax rate. For bonuses, it is 100% – 29.65%, or 70.35%.
3. Gross-up amount = net pay / net tax rate. For example, if you want the employee to receive a $150 bonus, the equation is $150/70.35% = $213.22.
Vicky Le, an employee of Sweet Shoppe Industries, receives a bonus of $5,000 for her stellar work. Her boss wants Vicky to receive $5,000 on the check. She contributes 3 percent of her pay in a pre-tax deduction to her 401(k). Calculate the gross pay amount that would result in $5,000 paid to Vicky.
Step by Step Answer:
Payroll Accounting 2023
ISBN: 9781264415618
9th Edition
Authors: Jeanette M. Landin, Paulette Schirmer