Richard Gaziano is a manager for Health Care, Inc. Health Care deducts Social Se

Question

Richard Gaziano is a manager for Health Care, Inc. Health Care deducts Social Security, Medicare, and FIT (by percentage method) from his earnings. Assume a rate of 6.2% on $110,100 for Social Security and 1.45% for Medicare. Before this payroll, Richard is $1,000 below the maximum level for Social Security earnings. Richard is married, is paid weekly, and claims 2 exemptions.

What is Richard

Richard Gaziano is a manager for Health Care, Inc. Health Care deducts Social Security, Medicare, and FIT (by percentage method) from his earnings. Assume a rate of 6.2% on $110,100 for Social Security and 1.45% for Medicare. Before this payroll, Richard is $1,000 below the maximum level for Social Security earnings. Richard is married, is paid weekly, and claims 2 exemptions.

Explanation / Answer

1) His gross weekly pay before any deductions is $1,800. He owes social security tax on $1000 of that amount. This calculates as: $1000 x .062 = $62 (Do not deduct yet)

2) His owes Medicare tax on all of the gross pay, which calculates as $1800 x .0145 = $26.1 (Do not deduct yet)

3) Now calculate his withholdings from his weekly pay. The textbook says the withholding amount for someone who is paid weekly with one exemption is $70.19. Richard has 2 exemptions, so we multiply by 2: $70.19 x 2 = $140.38

3) We are still completing our withholding calculation. We subtract the allowance above from his GROSS pay: $1800 - $140.38 = $1659.62

4) Now we have to deduct the tax withholding for a married person who is paid weekly, which will require looking at table 7.2. It states that a married person paid weekly (top right box) who receives OVER $1515 but NOT OVER $2900 is taxed $187.15 plus 25% of any excess over $1515.

5) First, we see how much money he is paid in excess of $1515: $1659.62 - $1515 = $144.62
6) He will pay the tax of $187.15 AND the 25% tax on the amount above, which calculates as: $187.15+ $144.62(.25) = $ 223.305

7) Now we can take all deductions from his gross pay and see what his net pay is on his $1800 paycheck, which calculates as: $1800(gross pay) - $62(social security tax) - $26.1(med tax) - $223.305 federal tax withholding = $1488.59 NET PAY!!

Link for Table 7.1

http://lectures.mhhe.com/connect/0077639588/Table7.1.jpg

Link for Table 7.2

http://lectures.mhhe.com/connect/0077639588/Table7.2.jpg

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