Calculate the Social Security and Medicare tax that would be applied to an annual salary of $125,000. Use $106,800 for maximum taxable earnings. (Soc Sec 6.2%, taxed up to $106,800 and Medicare 1.45%).
a.
Social Security tax: $77,500.00, Medicare tax: $18,125.00
b.
Social Security tax: $7,750.00, Medicare tax: $1,812.50
c.
Social Security tax: $66,216.00, Medicare tax: $18,125.00
d.
Social Security tax: $6,621.60, Medicare tax: $1,812.50
The correct answer is b.
Social Security tax: $7,750.00, Medicare tax: $1,812.50
For Social Security tax, the maximum taxable earnings is $106,800. Therefore, the maximum tax amount is 6.2% of $106,800, which is $6,621.60.
Since the annual salary is $125,000, which exceeds the maximum taxable earnings, the Social Security tax will only be applied to the maximum taxable earnings of $106,800.
The Social Security tax would be $6,621.60.
For Medicare tax, there is no maximum taxable earnings limit. Therefore, the Medicare tax rate of 1.45% will be applied to the entire annual salary of $125,000.
The Medicare tax would be 1.45% of $125,000, which is $1,812.50.
Thus, the total Social Security tax would be $6,621.60 and the total Medicare tax would be $1,812.50.
To calculate the Social Security tax, we need to multiply the annual salary by the Social Security tax rate (6.2%). However, the maximum taxable earnings for Social Security is $106,800. So, we can calculate the Social Security tax as follows:
Social Security tax = Minimum(Annual salary, Maximum taxable earnings) * Social Security tax rate
= Minimum($125,000, $106,800) * 6.2%
= $106,800 * 6.2%
= $6,621.60
To calculate the Medicare tax, we need to multiply the annual salary by the Medicare tax rate (1.45%). There is no maximum limit for Medicare tax. So, we can calculate the Medicare tax as follows:
Medicare tax = Annual salary * Medicare tax rate
= $125,000 * 1.45%
= $1,812.50
Therefore, the correct answer is:
d. Social Security tax: $6,621.60, Medicare tax: $1,812.50