Jeff Jones earns $1,200 per week. He is married and claims four withholding allowances. The FICA rate is as follows: Social Security rate is 6.2% on $97,500; Medicare rate is 1.45%. To date his cumulative wages are $6,000. Each paycheck, his employer also deducts $42.50 for health insurance. What is his net pay? (Calculate FIT by the percentage method
To calculate Jeff Jones' net pay, we need to consider the following deductions: FICA (Social Security and Medicare), Federal Income Tax (FIT), and health insurance.
1. Calculate the FICA deduction:
- Social Security: The Social Security rate is 6.2% on earnings up to $97,500. Since Jeff's cumulative wages are $6,000, this deduction only applies to his earnings. So, the Social Security deduction is 6.2% * $6,000 = $372.
- Medicare: The Medicare rate is 1.45% on all earnings. So, the Medicare deduction is 1.45% * $6,000 = $87.
2. Calculate the FIT deduction:
- To determine the FIT, we need to use the percentage method. This method requires looking up the appropriate tax brackets and applying the rates to the taxable income.
- Since the question doesn't provide Jeff's filing status or any additional information, we won't be able to calculate the exact FIT deduction. However, I can explain how to do it if you have the necessary information.
3. Calculate the total deductions:
- Add up the FICA deductions, FIT (if applicable), and the health insurance deduction: $372 (Social Security) + $87 (Medicare) + $42.50 (health insurance).
4. Calculate the net pay:
- Subtract the total deductions from Jeff's weekly earnings: $1,200 (weekly earnings) - total deductions calculated in step 3.
By following these steps, you will be able to calculate Jeff Jones' net pay, provided you have the necessary information for the FIT deduction.
To calculate Jeff Jones' net pay, we need to consider his earnings, withholding allowances, FICA rates, cumulative wages, health insurance deduction, and FIT (Federal Income Tax) using the percentage method.
Step 1: Calculate the Social Security and Medicare taxes.
- Social Security tax: Jeff's earnings are subject to a maximum Social Security tax of $97,500 at a rate of 6.2%. As his cumulative wages are only $6,000, the Social Security tax will be applicable.
- Social Security tax = $6,000 * 6.2% = $372
- Medicare tax: Jeff's earnings are subject to Medicare tax at a rate of 1.45% with no maximum taxable limit.
- Medicare tax = $1,200 * 1.45% = $17.40
Step 2: Calculate the FIT using the percentage method.
- Determine Jeff's taxable income by subtracting the withholding allowances from his gross pay.
- Gross pay = $1,200
- Withholding allowances = 4 * $4,300 (annual withholding amount for each allowance) = $17,200
- Taxable income = Gross pay - Withholding allowances = $1,200 - $17,200 = -$16,000 (negative indicates a refund)
- Use the IRS Percentage Method Tables to find the appropriate withholding tax based on Jeff's taxable income, marital status, and pay period. As the taxable income is negative, the FIT will be zero.
Step 3: Calculate the net pay.
- Subtract the Social Security and Medicare taxes from the gross pay and deduct the health insurance premium.
- Net pay = Gross pay - Social Security tax - Medicare tax - Health Insurance Premium
- Net pay = $1,200 - $372 - $17.40 - $42.50
- Net pay = $768.10
Therefore, Jeff Jones' net pay is $768.10 per week.
Gross earnings $1,200 weekly
Total deductions = $42.50 Health insurance
+1.45% of weekly salary=1.45%=0.0145*1,200=17.40
+6.2%=0.062X1200=74.40 Social Security
=42.50+17.40+74.40=$134.30
FIT = $17.40+74.40*2=$183.60
Answer: Net pay = $1,200-$134.30=$1,065.70