Prior to the last weekly payroll period of the calendar year, the cumulative earnings of employees A and B are $99,350 and $91,000 respectively. Their earnings for the last completed payroll period of the year are $850 each. The amount of earning subject to social security tax at 6% is $100,000. All earnings are subject to Medicare tax of 1.5%. Assuming that the payroll will be paid on December 29, what will be the employer’s total FICA tax for this payroll period on the two salary amounts of $850 each?
Computation/Explanation:
Employee A:
SS Tax = $650 x 6% = $39
Medicare Tax = $850 x 1.5% = $12.75
Employee B:
SS Tax = $850 x 6% = $51
Medicare Tax = $850 x 1.5% = $12.75
Total FICA tax: $39 + $12.75 + $51 + $12.75 = $115.50
Please note that we used $650 for SS Tax for Employee A’s earning because only $650 is left until we reach the limit of $100,000.
To calculate the employer's total FICA tax for this payroll period, we need to determine the social security and Medicare taxes for each employee's earnings.
Let's break down the calculation step by step:
1. Calculate Social Security Tax:
- The social security tax rate is 6%.
- The maximum amount of earnings subject to social security tax is $100,000.
- Since both employees' combined earnings are less than the maximum, they will be subject to the full 6% tax rate.
Employee A:
- Cumulative earnings before the payroll period: $99,350
- Earnings for the current payroll period: $850
- Employee A's total earnings for the year: $99,350 + $850 = $100,200
- Social security tax for Employee A: $100,200 * 6% = $6,012
Employee B:
- Cumulative earnings before the payroll period: $91,000
- Earnings for the current payroll period: $850
- Employee B's total earnings for the year: $91,000 + $850 = $91,850
- Social security tax for Employee B: $91,850 * 6% = $5,511
2. Calculate Medicare Tax:
- The Medicare tax rate is 1.5% for all earnings.
Employee A:
- Medicare tax for Employee A: $100,200 * 1.5% = $1,503
Employee B:
- Medicare tax for Employee B: $91,850 * 1.5% = $1,378.25
3. Calculate the Employer's Total FICA Tax:
- The employer's contribution to FICA tax is equal to the total social security tax plus the total Medicare tax.
Total Social Security Tax: $6,012 + $5,511 = $11,523
Total Medicare Tax: $1,503 + $1,378.25 = $2,881.25
Employer's Total FICA Tax: $11,523 + $2,881.25 = $14,404.25
Therefore, the employer's total FICA tax for this payroll period on the two salary amounts of $850 each will be $14,404.25.