Laurie expects to make $100,000 in 2007. Her social security tax 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 amount of FICA (Federal Insurance Contributions Act) that Laurie is expected to pay for the year, we need to calculate the Social Security tax and Medicare tax separately.
1. Social Security tax:
- The Social Security tax rate is 6.20%.
- There is a wage base limit for Social Security tax, which means that only income up to a certain amount is subject to the tax.
- For 2007, the wage base limit was $97,500.
To calculate the Social Security tax for Laurie:
- Multiply her expected income ($100,000) by the Social Security tax rate (6.20% or 0.062).
- If her income is below the wage base, the result is her Social Security tax for the year. If her income is above the wage base, the tax is capped at the maximum limit.
- Let's calculate:
Social Security tax = min($100,000 * 0.062, $97,500 * 0.062)
= min($6,200, $6,045)
= $6,045 (since $6,045 is the smaller value)
Therefore, Laurie is expected to pay $6,045 in Social Security tax for the year.
2. Medicare tax:
- The Medicare tax rate is 1.45%.
- Unlike Social Security tax, there is no wage base limit for Medicare tax, so all income is subject to this tax.
To calculate the Medicare tax for Laurie:
- Multiply her expected income by the Medicare tax rate.
- Let's calculate:
Medicare tax = $100,000 * 0.0145
= $1,450
Therefore, Laurie is expected to pay $1,450 in Medicare tax for the year.
Finally, to calculate the total FICA amount:
Total FICA = Social Security tax + Medicare tax
= $6,045 + $1,450
= $7,495
Therefore, Laurie is expected to pay $7,495 in FICA for the year.