Practical Problems As We Go To Press The Federal Income Tax

Practical Problems Aas We Go To Press The Federal Income Tax Rates

Practical Problems • A As we go to press, the federal income tax rates for 2014 are being determined by budget talks in Washington and not available for publication. For this edition, the 2013 federal income tax tables and 2013 FICA rates have been used. 4-1A LO 1. Sean Matthews is a waiter at the Duluxe Lounge. In his first weekly pay in March, he earned $150.00 for the 40 hours he worked. In addition, he reports his tips for February to his employer ($500.00), and the employer withholds the appropriate taxes for the tips from this first pay in March. Calculate his net take-home pay assuming the employer withheld federal income tax (wage-bracket, married, 2 allowances), social security taxes, and state income tax (2%). 4-3A LO 3. Use (a) the percentage method and (b) the wage-bracket method to compute the federal income taxes to withhold from the wages or salaries of each employee. 4-4A LO 3. Eaton Enterprises uses the wage-bracket method to determine federal income tax withholding on its employees. Find the amount to withhold from the wages paid each employee. 4-11A LO 1. George Clausen (age 48) is employed by Kline Company and is paid a salary of $42,640. He has just decided to join the company's Simple Retirement Account (IRA form) and has a few questions. Answer t : 4-5A LO 3. The names of the employees of Hogan Thrift Shop are listed on the following payroll register. Employees are paid weekly. The marital status and the number of allowances claimed are shown on the payroll register, along with each employee's weekly salary, which has remained the same all year. Complete the payroll register for the payroll period ending December 19, the 51st weekly payday. The state income tax rate is 2% of total earnings, the city income tax rate is 1.5% of the total gross earnings, and the wage-bracket method is used for federal income taxes. 4-8A LO 3. The names of the employees of Cox Security Systems and their regular salaries are shown in the following payroll register. Note that Hall and Short are paid monthly on the last payday, while all others are paid weekly. In addition to the regular salaries, the company pays an annual bonus based on the amount of earnings for the year. For the current year, the bonus amounts to 8% of the annual salary paid to each employee. The bonus is to be paid along with the regular salaries on December 26, but the amount of the bonus and the amount of the regular salary will be shown separately on each employee's earnings statement. Assume that all employees received their regular salary during the entire year. Prepare the payroll for the pay period ending December 26, showing the following for each employee: • Use the wage-bracket method to withhold federal income tax from the regular salaries. • Withhold a flat 25% on the annual bonus. • Total salaries and bonuses are subject to a 2% state income tax and a 1 % city income tax. Compute the employer's FICA taxes for the pay period ending December 26. 4-10A LO 3. Mattola Company is giving each of its employees a holiday bonus of $100 on December 19 (a nonpayday). The company wants each employee's check to be $100. The supplemental tax percent is used. 4-5A Name: Enter the appropriate numbers/formulas in the shaded (gray) cells. An asterisk () will appear to the right of an incorrect answer. 4-5A HOGAN THRIFT SHOP PAYROLL REGISTER FOR PERIOD ENDING December 19, 20 - - EE ER OASDI 0..062 SIT 0.02 MARITAL STATUS NO. OF W/H ALLOW. DEDUCTIONS HI 0..0145 CIT 0.015 ( a ) ( b ) ( c ) ( d ) ( e ) OASDI TOTAL FICA NET Base 113700 EMPLOYEE NAME EARNINGS OASDI HI FIT CIT PAY oasdi hi fit sit cit net pay John, Matthew M 3 2,272.......14 Smith, Jennifer S ..05 3..00 5.50 4..33 Bullen, Catherine M ..50 3..00 5.00 3..12 Matthews, Mary S ..86 4.64 6.00 6.41 4..54 Hadt, Bonnie S ..90 6..00 9.00 6..82 Camp, Sean S ..75 8...21 8..00 Wilson, Helen S ..48 6..00 9.51 7..49 Gleason, Jose M .......76 Totals 5,493.25 Mark Sears: Enter as a formula totaling column Mark Sears: Enter as a formula totaling column Mark Sears: Enter as a formula totaling column Mark Sears: Enter as a formula totaling column 205......20 Compute the employer's FICA taxes for the pay period ending December 19. OASDI Taxes HI Taxes OASDI taxable earnings HI taxable earnings 3321.25 $ 5,493.25 OASDI taxes HI taxes Mark Sears: Hint: Employer's tax must be calculated separately on total wages, since differences may occur due to rounding of individual employee amounts 205.92 Mark Sears: Hint: Employer's tax must be calculated separately on total wages, since differences may occur due to rounding of individual employee amounts 79.65 Mark Sears: Hint: Employer's tax must be calculated separately on total wages, since differences may occur due to rounding of individual employee amounts Ros Hill: Enter as a formula of taxable wages x OASDI rate Mark Sears: Enter as a formula of taxable wages x HI rate Mark Sears: Hint: Must use Percentage Method. Mark Sears: Enter as a formula of taxable wages x state tax rate Mark Sears: Enter as a formula of taxable wages x city tax rate Mark Sears: Enter as a formula of total earnings less the sum of deductions Mark Sears: Enter as a formula totaling column Mark Sears: Enter as a formula adding applicable amounts in the Total Earnings column Mark Sears: Hint: Employer's tax must be calculated separately on total applicable wages, since differences may occur due to rounding of individual employee amounts Student Work Area Instructor Comment/Grade Area 4-8A Name: Enter the appropriate numbers/formulas in the shaded (gray) cells. An asterisk () will appear to the right of an incorrect answer. An asterisk (*) will appear to the right of an incorrect answer. 4-8A COX SECURITY SYSTEMS PAYROLL REGISTER FOR PERIOD ENDING December 26, 20 - - Oasdi Hi fit sit cit Net pay MARITAL STATUS NO. OF W/H ALLOW. EARNINGS DEDUCTIONS EE 0...02 0.01 ( a) ( b ) ( a ) ( b ) ( c ) ( d ) ( e ) ER 0..0145 EMPLOYEE NAME REGULAR SUPP'L. TOTAL FICA NET OASDI HI FIT SIT CIT PAY Hall, Michael M 5 (M) 5,000.00 Mark Sears: Enter as a formula of taxable earnings x city tax rate 4800........30 Short, Joy T. M 2 (M) 2,750.........96 Abbott, Linda S .........64 Smith, Joseph M .........27 Tols, Sean M.

M .........77 Gillespie, Michelle S .........66 Smart, Jennifer M .........02 White, Matthew J. S .........44 Totals 10,465.00 Mark Sears: Enter as a formula totaling column 18734........06 Compute the employer's FICA taxes for the pay period ending December 26. OASDI Taxes HI Taxes OASDI taxable earnings HI taxable earnings 29199..40 OASDI taxes Mark Sears: Hint: Employer's tax must be calculated separately on total applicable wages, since differences may occur due to rounding of individual employee amounts Mark Sears: Enter as a formula of total earnings less the sum of deductions Mark Sears: Enter as a formula totaling column Mark Sears: Enter as a formula totaling column Mark Sears: Enter as a formula totaling column Mark Sears: Enter as a formula totaling column HI taxes Mark Sears: Hint: Employer's tax must be calculated separately on total applicable wages, since differences may occur due to rounding of individual employee amounts Mark Sears: Enter as a formula totaling column Ros Hill: Enter as a formula calculating annual pay x bonus rate Ros Hill: Enter as a formula totaling regular and supplemental pay Mark Sears: Enter as a formula of taxable earnings x OASDI rate Mark Sears: Enter as a formula of taxable earnings x HI rate Mark Sears: Enter as a formula of taxable earnings x state tax rate Mark Sears: Enter as a formula totaling column 1810..39 (M) indicates monthly pay.

Paper For Above instruction

The provided practical problems revolve around payroll calculations, focusing on federal, state, and local taxes, as well as employer FICA contributions, for various employees and scenarios. These tasks include computing net pay considering deductions, using different withholding methods, handling bonuses, and preparing payroll registers for given periods.

In particular, the calculations involve determining federal income tax withholding using both the wage-bracket and percentage methods, which require understanding tax tables, allowances, and gross-up procedures. For example, Sean Matthews’ case illustrates calculating net pay by considering hourly wages, tips, and employee allowances, deducting federal and state taxes, and Social Security taxes. Similarly, George Clausen’s scenario shows retirement contribution questions alongside taxable income calculations.

The payroll for Hogan Thrift Shop and Cox Security Systems involves completing detailed payroll registers, factoring in marital status, allowances claimed, and multiple tax rates for state and city income taxes, as well as various deductions. These exercises simulate real-world payroll processing, requiring thorough understanding of withholding methods, tax rates, and employer contributions.

Bonus payment computations exemplify gross-up techniques to ensure employees receive a specified net amount after taxes, demonstrating supplemental tax procedures. The calculators for the bonus amounts and associated taxes reflect the complexities of payroll withholdings, including how to handle nonpayday bonuses and annual bonus payouts based on a fixed percentage of salary.

Furthermore, the employer’s FICA tax calculations underscore the importance of applying the correct rates separately on total taxable wages, including adjustments for rounding errors in individual employee wages. The payroll data provided for various dates and processing periods serve as practical exercises in accurate payroll accounting, necessary for compliance and financial reporting.

References

• Internal Revenue Service. (2023). Publication 15 (Circular E), Employer's Tax Guide. IRS.
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• United States Department of Labor. (2022). Employee Benefits Security Administration. IRS regulations on retirement accounts.
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