B. Find FICA Deductions The previous section of this chapter discussed the computation of gross earnings....

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B. Find FICA Deductions The previous section of this chapter discussed the computation of gross earnings. Typically, employees do not receive the amount of their gross earnings in their paycheck, because various employment taxes, and possibly other benefits, are deducted. In addition, there are employment taxes which are paid directly by the employer, and not deducted from an employee's paycheck. Self-employed persons are also subject to employment taxes. Employment taxes are basically computed as a percentage of wages or income. However, taxable income is not always the same as gross income, since some wages are often excluded from tax. Tax rates and wage bases change annually, to reflect cost of living adjustments or the desires of Congress. Some taxes assess the same rate on every taxpayer, and some taxes use a scale of rates. In this section, we shall discuss flat taxes, where (almost) every taxpayer pays the same rate. Flat employment taxes include the FICA (Social Security and Medicare) taxes, the Self-Employment Tax, and the Federal Unemployment Tax. 148 Preparing Payroll Te molto92 Flat taxes may have an income ceiling, above which no income is taxed. In 1935, the U.S. Congress passed the Social Security Act, which provided basic retirement benefits to old age survivors. The portion of the act which mandates tax withholding is sometimes referred to as the Federal Insurance Contributions Act, or FICA. Since 1935, because of changes to the system, disability and medical benefits are also provided. Due to the increasing availability of benefits, the proportion of eligible recipients in the population, and the increasing cost of living, the revenue required from the FICA tax has also increased. From an original rate of 1% on each employee's first $3,000 of gross earnings in 1937, the tax reached 7.65% on the first $51,300 of each employee's gross earnings in 1990.oiz ulq oq 0082 to visises an In the following year, the portion of the tax which provided for medical benefits was separated from the rest of the tax, so two separate computations became necessary. These are the Social Security tax (or Old Age Survivors and Disability Insurance, abbreviated OASDI) and the Medicare tax (or Hospital Insurance, sometimes abbreviated HI). Supplemental Medical Insurance, or SMI, is also part of the Medicare program, and is partially funded by the tax, and partially paid for by recipients of that program. Unfortunately, the combined FICA tax is sometimes called the Social Security tax, even in some official descriptions. This leads to confusion between the whole FICA tax and the part designated for OASDI. In this text, we shall use the term Social Security only for the OASDI portion of FICA. In 2011, due to the languishing economy, Congress legislated a reduction in the tax rate for the employee deduction for Social Security. Therefore, the 2021 rates for these taxes are: A Social Security, employee: 6.2% of the first $142,800 of gross wages ▲ Medicare: 1.45% of all gross wages A Employers will deduct the tax amounts, using these rates, from the gross gross earnings of their employees. Furthermore, employers much match the amount of both Social Security and Medicare that is deducted from the employee's pay. Both the employee deductions and the employer's orto shares will be forwarded to a financial institution authorized to collect these taxes. Although they are submitted together, Social Security and Medicare taxes are generally reported separately, since the tax returns for businesses require separate accounting for these two taxes. The Medicare tax is truly a flat tax, in which every taxpayer pays exactly the same rate of their gross income. The Social Security tax, however, has a wage ceiling, beyond which no tax is assessed. This creates three cases into which a taxpayer's paycheck may fall: ▲ year-to-date wage will remain under the ceiling abo ▲ year-to-date wage will change from under to over the ceiling ▲ year-to-date wage is already beyond the ceiling The following trilogy of examples illustrates these three different cases. selca xirl bos sav 98 21701 A EXAMPLE 1 Brenda had $1,186 in gross earnings for her current pay period, and her year-to-date earnings were $104,582. How much will be deducted from her current paycheck for FICA taxes? SOLUTION The sum of her current and her year-to-date earnings, 104582+1186 = 105768 does not exceed the $142,800 ceiling (as it won't for most employees). Therefore, we tax all of her current earnings at the rates given above. The Social Security computation is: 1186 x 0.062 = 73.53 A Section 9.1 Gross Pay and Net Pay 149 and the Medicare computation is: comparin boM.bus 1186 × 0.0145 = 17.20 x Brenda's Social Security and Medicare tax deductions are $73.53 and $17.20, respectively. STANDS EXAMPLE 2 abst Chesley had gross earnings of $3,152 for her current pay period, and her year-to-date earnings were $140,402. How much will be deducted for FICA taxes for this pay period? SOLUTION origif vlqmia Doe Digne xel 19rigirl banglean earl The sum of Chesley's current and does exceed the $142,800 earnings 140402 + 3152 = 143554 year-to-date earnings, 19 moqooni eli ol (xel to ainuoma 140402 + 3152 = 143554 monteb ceiling for Social Security tax. Only that portion of the current $3,152 earnings below the $142,800 ceiling can be taxed for Social Security. The Social Security computation is: thello at besit 142800 - 140402 = 23982 2398 x 0.062 = 148.676 which rounds to $148.68. Joblibni nosxsi gaiblordlitw ubab 19yolgme 16 3152 x 0.0145 45.70 rublon All of her current earnings are taxed for Medicare. betsloos od! indoms T Chesley's Social Security and Medicare tax deductions for this pay period are $148.68 and obst $45.70, respectively. hamish conswall to reditul EXAMPLE 3 Danielle had gross earnings of $4,251 for the current pay period, and had year-to-date earnings of $145,600. How much will be deducted from her check for FICA taxes? T SOLUTION Maril sigimning Her year-to-date earnings exceed the Social Security wage ceiling of $142,800, so her current earnings are not subject to Social Security tax. But all of her current earnings are taxed for Medicare. m tot side) xat intib xed braban 4251 x 0.0145 61.64 22 கவி ylimst nose tol Therefore, Danielle's Medicare deduction is $61.64, and she has $0 deducted for Social Security tax. )' B. Find the amounts of Social Security and Medicare for the current pay period for evor each of the following employees. sowel 29junim 21 bos nuod CA beshow Xn Current or 19 E2 Year-To-Date Social Y&Social airl b Medicare 19 Gross Earnings Employee 1. S. Turner $358.41 Earnings $8,662.15 Security anworl 04 190 1ot ilsd-6-bns-9mil ritiw pleaw fasl 29junim 24 bro auod XA beshow neal AE $583.168.02 $30,411.18ysq 22019 15rl bni.New eq 199 2. M. Bell yeq 2201g dose bait 3. F. Whitecross $1,225.22 $15,596.12 4. T. Baker $1,801.61 $63,017.41 Triw 00+ SAC esleten .28 5. C. Gould $2,533.61 $110,811.59 6. M. Towne $4,142.52 $145,794.44° ns diw ,001,x2? E 7. P. Baldwin $1,184.21 $952.41 $109,986.14 i aslanos brs 000.12 walad zolse no noizzimmo 2 iw .002,12 2912 19 8. G. Falk a 000,A2 10 8250x9 по $109,504.33 9. N. Schwarz $1,538.44 $108,989.41 bris 2 10. T. Talley $3,249.56 $142,336.49 6 chiw 240 162 29162 190 .88 002 512 to 2290x9 11. Z. McCombs $3,246.33 $139,564.95 12. O. Ledwith a $3,514.62 $177,992.44 PE odo o equizzimmu How Exercise 9.1 163 Use the 2021 tax rates to find Social Security and Medicare deductions for the following problems. 62 V .2 13. Philip earned $1,589 last week, and had year-to-date earnings of $108,894 for the MA 88. 14. Bill earned $3,592 on his last biweekly check, and had year-to-date earnings of $107,841. griT esonswolls 29 Jesi eid no enimce boneg yea year. isl bas b b07 208 12s ai sol .0 bada 15. Linda earned $2,095 on her last check, and had year-to-date earnings of $28,338. owl emisla bns signle al sr12.0822 91ew bow 126l not agnirso 220g 2'60sia.or boban veu air hot apxst gnibloddiw Isobel her hol anodoubab adi bnit 2990swolls 16. Laura earned $3,965 on her last check, and had year-to-date earnings of $146,338. teal aid no de, sisw 22018 at W .tr 17. Grace had year-to-date earnings of $109,866, and earned $1,335 on her last check. 18. Tom had year-to-date earnings of boneq yaq air: 101 29- $140,567, and earned $3,589 on his last check. gniblo bloririw stabst ned brit 19. Frederick is married, earned $2,655 last week, and had year-to-date earnings of $141,344. boiren yeg air jo Isisb Hls on amnislo bans beimsmei sh.1 hed bai.s2.eeɛ,82 91ow 2g 200 20. Jessie is single, earned $2,669 for the last two weeks, and her year-to-date earnings were $127,982. bas sign 21. Zebulon earned $3,258 on his last check, which brings his current year-to-date earnings up to $142,987. 21 22. Althea earned $2,598 on her last check, which brings her current year-to-date earnings up to $109,985. if no berup wolls of amizi bos be agnimes boisq yoq airbo B. Find FICA Deductions The previous section of this chapter discussed the computation of gross earnings. Typically, employees do not receive the amount of their gross earnings in their paycheck, because various employment taxes, and possibly other benefits, are deducted. In addition, there are employment taxes which are paid directly by the employer, and not deducted from an employee's paycheck. Self-employed persons are also subject to employment taxes. Employment taxes are basically computed as a percentage of wages or income. However, taxable income is not always the same as gross income, since some wages are often excluded from tax. Tax rates and wage bases change annually, to reflect cost of living adjustments or the desires of Congress. Some taxes assess the same rate on every taxpayer, and some taxes use a scale of rates. In this section, we shall discuss flat taxes, where (almost) every taxpayer pays the same rate. Flat employment taxes include the FICA (Social Security and Medicare) taxes, the Self-Employment Tax, and the Federal Unemployment Tax. 148 Preparing Payroll Te molto92 Flat taxes may have an income ceiling, above which no income is taxed. In 1935, the U.S. Congress passed the Social Security Act, which provided basic retirement benefits to old age survivors. The portion of the act which mandates tax withholding is sometimes referred to as the Federal Insurance Contributions Act, or FICA. Since 1935, because of changes to the system, disability and medical benefits are also provided. Due to the increasing availability of benefits, the proportion of eligible recipients in the population, and the increasing cost of living, the revenue required from the FICA tax has also increased. From an original rate of 1% on each employee's first $3,000 of gross earnings in 1937, the tax reached 7.65% on the first $51,300 of each employee's gross earnings in 1990.oiz ulq oq 0082 to visises an In the following year, the portion of the tax which provided for medical benefits was separated from the rest of the tax, so two separate computations became necessary. These are the Social Security tax (or Old Age Survivors and Disability Insurance, abbreviated OASDI) and the Medicare tax (or Hospital Insurance, sometimes abbreviated HI). Supplemental Medical Insurance, or SMI, is also part of the Medicare program, and is partially funded by the tax, and partially paid for by recipients of that program. Unfortunately, the combined FICA tax is sometimes called the Social Security tax, even in some official descriptions. This leads to confusion between the whole FICA tax and the part designated for OASDI. In this text, we shall use the term Social Security only for the OASDI portion of FICA. In 2011, due to the languishing economy, Congress legislated a reduction in the tax rate for the employee deduction for Social Security. Therefore, the 2021 rates for these taxes are: A Social Security, employee: 6.2% of the first $142,800 of gross wages ▲ Medicare: 1.45% of all gross wages A Employers will deduct the tax amounts, using these rates, from the gross gross earnings of their employees. Furthermore, employers much match the amount of both Social Security and Medicare that is deducted from the employee's pay. Both the employee deductions and the employer's orto shares will be forwarded to a financial institution authorized to collect these taxes. Although they are submitted together, Social Security and Medicare taxes are generally reported separately, since the tax returns for businesses require separate accounting for these two taxes. The Medicare tax is truly a flat tax, in which every taxpayer pays exactly the same rate of their gross income. The Social Security tax, however, has a wage ceiling, beyond which no tax is assessed. This creates three cases into which a taxpayer's paycheck may fall: ▲ year-to-date wage will remain under the ceiling abo ▲ year-to-date wage will change from under to over the ceiling ▲ year-to-date wage is already beyond the ceiling The following trilogy of examples illustrates these three different cases. selca xirl bos sav 98 21701 A EXAMPLE 1 Brenda had $1,186 in gross earnings for her current pay period, and her year-to-date earnings were $104,582. How much will be deducted from her current paycheck for FICA taxes? SOLUTION The sum of her current and her year-to-date earnings, 104582+1186 = 105768 does not exceed the $142,800 ceiling (as it won't for most employees). Therefore, we tax all of her current earnings at the rates given above. The Social Security computation is: 1186 x 0.062 = 73.53 A Section 9.1 Gross Pay and Net Pay 149 and the Medicare computation is: comparin boM.bus 1186 × 0.0145 = 17.20 x Brenda's Social Security and Medicare tax deductions are $73.53 and $17.20, respectively. STANDS EXAMPLE 2 abst Chesley had gross earnings of $3,152 for her current pay period, and her year-to-date earnings were $140,402. How much will be deducted for FICA taxes for this pay period? SOLUTION origif vlqmia Doe Digne xel 19rigirl banglean earl The sum of Chesley's current and does exceed the $142,800 earnings 140402 + 3152 = 143554 year-to-date earnings, 19 moqooni eli ol (xel to ainuoma 140402 + 3152 = 143554 monteb ceiling for Social Security tax. Only that portion of the current $3,152 earnings below the $142,800 ceiling can be taxed for Social Security. The Social Security computation is: thello at besit 142800 - 140402 = 23982 2398 x 0.062 = 148.676 which rounds to $148.68. Joblibni nosxsi gaiblordlitw ubab 19yolgme 16 3152 x 0.0145 45.70 rublon All of her current earnings are taxed for Medicare. betsloos od! indoms T Chesley's Social Security and Medicare tax deductions for this pay period are $148.68 and obst $45.70, respectively. hamish conswall to reditul EXAMPLE 3 Danielle had gross earnings of $4,251 for the current pay period, and had year-to-date earnings of $145,600. How much will be deducted from her check for FICA taxes? T SOLUTION Maril sigimning Her year-to-date earnings exceed the Social Security wage ceiling of $142,800, so her current earnings are not subject to Social Security tax. But all of her current earnings are taxed for Medicare. m tot side) xat intib xed braban 4251 x 0.0145 61.64 22 கவி ylimst nose tol Therefore, Danielle's Medicare deduction is $61.64, and she has $0 deducted for Social Security tax. )' B. Find the amounts of Social Security and Medicare for the current pay period for evor each of the following employees. sowel 29junim 21 bos nuod CA beshow Xn Current or 19 E2 Year-To-Date Social Y&Social airl b Medicare 19 Gross Earnings Employee 1. S. Turner $358.41 Earnings $8,662.15 Security anworl 04 190 1ot ilsd-6-bns-9mil ritiw pleaw fasl 29junim 24 bro auod XA beshow neal AE $583.168.02 $30,411.18ysq 22019 15rl bni.New eq 199 2. M. Bell yeq 2201g dose bait 3. F. Whitecross $1,225.22 $15,596.12 4. T. Baker $1,801.61 $63,017.41 Triw 00+ SAC esleten .28 5. C. Gould $2,533.61 $110,811.59 6. M. Towne $4,142.52 $145,794.44° ns diw ,001,x2? E 7. P. Baldwin $1,184.21 $952.41 $109,986.14 i aslanos brs 000.12 walad zolse no noizzimmo 2 iw .002,12 2912 19 8. G. Falk a 000,A2 10 8250x9 по $109,504.33 9. N. Schwarz $1,538.44 $108,989.41 bris 2 10. T. Talley $3,249.56 $142,336.49 6 chiw 240 162 29162 190 .88 002 512 to 2290x9 11. Z. McCombs $3,246.33 $139,564.95 12. O. Ledwith a $3,514.62 $177,992.44 PE odo o equizzimmu How Exercise 9.1 163 Use the 2021 tax rates to find Social Security and Medicare deductions for the following problems. 62 V .2 13. Philip earned $1,589 last week, and had year-to-date earnings of $108,894 for the MA 88. 14. Bill earned $3,592 on his last biweekly check, and had year-to-date earnings of $107,841. griT esonswolls 29 Jesi eid no enimce boneg yea year. isl bas b b07 208 12s ai sol .0 bada 15. Linda earned $2,095 on her last check, and had year-to-date earnings of $28,338. owl emisla bns signle al sr12.0822 91ew bow 126l not agnirso 220g 2'60sia.or boban veu air hot apxst gnibloddiw Isobel her hol anodoubab adi bnit 2990swolls 16. Laura earned $3,965 on her last check, and had year-to-date earnings of $146,338. teal aid no de, sisw 22018 at W .tr 17. Grace had year-to-date earnings of $109,866, and earned $1,335 on her last check. 18. Tom had year-to-date earnings of boneq yaq air: 101 29- $140,567, and earned $3,589 on his last check. gniblo bloririw stabst ned brit 19. Frederick is married, earned $2,655 last week, and had year-to-date earnings of $141,344. boiren yeg air jo Isisb Hls on amnislo bans beimsmei sh.1 hed bai.s2.eeɛ,82 91ow 2g 200 20. Jessie is single, earned $2,669 for the last two weeks, and her year-to-date earnings were $127,982. bas sign 21. Zebulon earned $3,258 on his last check, which brings his current year-to-date earnings up to $142,987. 21 22. Althea earned $2,598 on her last check, which brings her current year-to-date earnings up to $109,985. if no berup wolls of amizi bos be agnimes boisq yoq airbo

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Find the amounts of Social Security and Medicare deductions for each of the given employees First lets recall the tax rates for 2021 Social Security employee 62 of the first 142800 of gross wages Medi... View the full answer