Concept explainers
Wage and tax statement data on employer FICA tax
Ehrlich Co. began business on January 2. Salaries were paid to employees on the last day of each month, and social security tax, Medicare tax, and federal income tax were withheld in the required amounts. An employee who is hired in the middle of the month receives half the monthly salary for that month. All required payroll tax reports were filed, and the correct amount of payroll taxes was remitted by the company for the calendar year. Early in the following year, before the Wage and Tax Statements (Form W-2) could be prepared for distribution to employees and for filing with the Social Security Administration, the employees’ earnings records were inadvertently destroyed.
None of the employees resigned or were discharged during the year, and there were no changes in salary rates. The social security tax was withheld at the rate of 6.0% and Medicare tax at the rate of 1.5% on salary. Data on dates of employment, salary rates, and employees’ income taxes withheld, which are summarized as follows, were obtained from personnel records and payroll records:
Employee | Date First Employed |
Monthly Salary | Monthly Income Tax Withheld |
Arnett | Nov. 16 | $ 5,500 | $ 944 |
Cruz | Jan. 2 | 4,800 | 833 |
Edwards | Oct. 1 | 8,000 | 1,592 |
Harvin | Dec. 1 | 6,000 | 1,070 |
Nicks | Feb. 1 | 10,000 | 2,350 |
Shiancoe | Mar. 1 | 11,600 | 2,600 |
Ward | Nov. 16 | 5,220 | 876 |
Instructions
1. Compute the amounts to he reported for the year on each employee’s Wage and Tax Statement (Form W-2), arranging the data as follows (round to the nearest cent):
Employee | Gross Earnings | Federal Income Tax Withheld | Social Security Tax Withheld | Medicare Tax Withheld |
2. Compute the following employer payroll taxes for the year: (A) social security, (B) Medicare, (C) state
1.
Payroll: The total payment that a company is required to pay to its employee for the services received is called as payroll.
Payroll withholding deduction: The amounts which the employer withheld from employees’ gross pay to deduct taxes such as federal income tax, state income tax, local income tax, and social security tax are called payroll withholding deduction.
Employer payroll taxes: The taxes which the employer must pay to the employees with their salaries is called employer payroll taxes. Such taxes are not withheld from employees’ gross earnings but instead they are paid by employer.
To calculate: The amount that would be reported for the year on each employee’s wage and tax statement.
Answer to Problem 10.3APR
Calculate the amount that would be reported for the year on each employee’s wage and tax statement.
Employee | Gross Earnings | Federal Income Tax Withheld | Social Security Tax Withheld | Medicare Tax Withheld |
Mr. A | $8,250(1) | $1,416(2) | $495.00(3) | $123.75(4) |
Mr. C | $57,600(5) | $9,996(6) | $3,456.00(7) | $864.00(8) |
Mr. E | $24,000(9) | $4,776(10) | $1,440.00(11) | $360.00(12) |
Mr. H | $6,000(13) | $1,070(14) | $360.00(15) | $90.00(16) |
Mr. N | $110,000(17) | $25,850(18) | $6,600.00(19) | $1,650.00(20) |
Mr. S | $116,000(21) | $26,000(22) | $6,960.00(23) | $1,740.00(24) |
Mr. W | $7,830(25) | $1,314(26) | $469.80(27) | $117.45(28) |
Explanation of Solution
Working notes:
Calculate gross earnings for Mr. A.
Calculate federal income tax withheld for Mr. A.
Calculate social security taxes withheld for Mr. A
Calculate Medicare taxes withheld for Mr. A.
Calculate gross earnings for Mr. C.
Calculate federal income tax withheld for Mr. C.
Calculate social security taxes withheld for Mr. C.
Calculate Medicare taxes withheld for Mr. C.
Calculate gross earnings for Mr. E.
Calculate federal income tax withheld for Mr. E.
Calculate social security taxes withheld for Mr. E.
Calculate Medicare taxes withheld for Mr. E.
Calculate gross earnings for Mr. H.
Calculate federal income tax withheld for Mr. H.
Calculate social security taxes withheld for Mr. H.
Calculate Medicare taxes withheld for Mr. H.
Calculate gross earnings for Mr. N.
Calculate federal income tax withheld for Mr. N.
Calculate social security taxes withheld for Mr. N.
Calculate Medicare taxes withheld for Mr. N.
Calculate gross earnings for Mr. S.
Calculate federal income tax withheld for Mr. S.
Calculate social security taxes withheld for Mr. S.
Calculate Medicare taxes withheld for Mr. S.
Calculate gross earnings for Mr. W.
Calculate federal income tax withheld for Mr. W.
Calculate social security taxes withheld for Mr. W.
Calculate Medicare taxes withheld for Mr. W.
2.
To calculate: The following employer payroll taxes for the year.
Explanation of Solution
Calculate the following employer payroll taxes for the year.
(A)
Calculate social security tax.
(B)
Calculate Medicare tax.
(C)
Calculate State unemployment tax.
(D)
Calculate Federal unemployment tax.
(E)
Calculate total payroll tax expense.
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Chapter 10 Solutions
Corporate Financial Accounting
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