Sky Co. employed Tom Mills in 2016. Tom earned $5,300 per month and worked the entire year. Assume the Social Security tax rate is 6 percent for the first $110,000 of earnings and the Medicare tax rate is 1.5 percent. Tom’s federal income tax withholding amount is $890 per month.

Sky Co. employed Tom Mills in 2016. Tom earned $5,300 per month and worked the entire year. Assume the Social Security tax rate is 6 percent for the first $110,000 of earnings and the Medicare tax rate is 1.5 percent. Tom’s federal income tax withholding amount is $890 per month. Use 5.4 percent for the state unemployment tax rate and .6 percent for the federal unemployment tax rate on the first $7,000 of earnings per employee.

Required:

a.	Answer the following questions. (Round your answers to 2 decimal places.)

1.	What is Tom’s net pay per month?

Explanation:

a.
1.

Tom
Gross earnings				$	5,300.00
Deductions:
Federal income tax	$	890.00
FICA tax — SS ($5,300 × 6%)		318.00
FICA tax — Medicare ($5,300 × 1.5%)		79.50
Total deductions					(1,287.50	)
Net pay				$	4,012.50

  
2.            

Tom’s monthly FICA tax:
Social security tax	$	318.00
Medicare tax		79.50
Total monthly FICA tax	$	397.50

 
3.

Sky Co. payroll tax expense - January:
Employer FICA social security tax	$	318.00
Employer FICA medicare tax		79.50
Employer unemployment tax ($5,300 × 6*%)		318.00
Total employer payroll tax	$	715.50

 

* Federal @ .6% = $31.80; State @ 5.4% = $286.20

Sky Co. payroll tax expense - February:
Employer FICA social security tax	$	318.00
Employer FICA medicare tax		79.50
Employer unemployment tax ($1,700 × 6*%)		102.00
Total employer payroll tax	$	499.50

* Federal @ .6% = $10.2; State @ 5.4% = $91.80

Sky Co. payroll tax expense - March:
Employer FICA social security tax	$	318.00
Employer FICA medicare tax		79.50
Total employer payroll tax	$	397.50

 

Sky Co. payroll tax expense - December:
Employer FICA social security tax	$	318.00
Employer FICA medicare tax		79.50
Total employer payroll tax	$	397.50

b.
1.
(January - November)

Tom
Gross earnings				$	9,400.00
Deductions:
Federal income tax	$	890.00
FICA tax - SS ($($9,400 × 6%)		564.00
FICA tax - Medicare ($9,400 × 1.5%)		141.00
Total deductions					(1,595.00	)
Net pay				$	7,805.00

(December)

Tom
Gross earnings				$	9,400.00
Deductions:
Federal income tax	$	890.00
FICA tax - SS ($110,000 – $103,400) × 6%		396.00
FICA tax - Medicare ($9,400 × 1.5%)		141.00
Total deductions					(1,427.00	)
Net pay				$	7,973.00

2.

Tom's monthly FICA tax: (January – November)
Social security tax	$	564.00
Medicare tax		141.00
Total monthly FICA tax	$	705.00

Tom's monthly FICA tax: (December)
Social security tax	$	396.00
Medicare tax		141.00
Total monthly FICA tax	$	537.00

3.

Assume gross salary is $9,400:

Sky Co. payroll tax expense - January:
Employer FICA social security tax ($9,400 × 6%)	$	564.00
Employer FICA medicare tax ($9,400 × 1.5%)		141.00
Employer unemployment tax ($7,000 × 6%)		420.00
Total employer payroll tax - January	$	1,125.00

Sky Co. payroll tax expense - February:
Employer FICA social security tax ($9,400 × 6%)	$	564.00
Employer FICA medicare tax ($9,400 × 1.5%)		141.00
Total employer payroll tax - January	$	705.00

 

Sky Co. payroll tax expense - March:
Employer FICA social security tax ($($9,400 × 6%)	$	564.00
Employer FICA medicare tax ($($9,400 × 1.5%)		141.00
Total employer payroll tax - March	$	705.00

  

Sky Co. payroll tax expense - December:
Employer FICA social security tax ($6,600 × 6%)	$	396.00
Employer FICA medicare tax ($9,400 × 1.5%)		141.00
Total employer payroll tax - December*	$	537.00

*FICA Social Security tax in December is limited to 6% × ($110,000 − $103,400). Tom had total wages at the end of November of $103,400).

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