Laurie expects to make $100,000 in 2007. Her social security tax rate is 6.20% up to the wage base, Medicare is 1.45%. How much FICA is Laurie expected to pay for the year?
To calculate the FICA (Federal Insurance Contributions Act) tax that Laurie is expected to pay for the year, we need to determine the taxable income subject to Social Security and Medicare taxes.
The Social Security tax rate is 6.20% on earnings up to a certain limit known as the wage base. For the year 2007, the wage base was $97,500.
First, we calculate the Social Security tax:
Social Security tax = (Income subject to Social Security tax) * (Social Security tax rate)
Since Laurie expects to earn $100,000 in 2007, we need to determine how much of her income is subject to the Social Security tax.
If $100,000 is greater than the wage base ($97,500), then the income subject to Social Security tax will be the wage base itself, which is $97,500.
Thus, the Social Security tax can be calculated as:
Social Security tax = $97,500 * 6.20% = $6,045
Next, we calculate the Medicare tax. The Medicare tax rate is a flat rate of 1.45% on all earned income.
Medicare tax = (Income subject to Medicare tax) * (Medicare tax rate)
Since there is no wage base limit for Medicare tax, the entire income of $100,000 is subject to the Medicare tax.
Thus, the Medicare tax can be calculated as:
Medicare tax = $100,000 * 1.45% = $1,450
Finally, we calculate the total FICA tax paid by adding the Social Security tax and the Medicare tax:
Total FICA tax = Social Security tax + Medicare tax
Total FICA tax = $6,045 + $1,450 = $7,495
Therefore, Laurie is expected to pay $7,495 in FICA tax for the year 2007.