Question

This window shows your responses and what was marked correct and incorrect from your previous attempt Exercise 9-10A Calculating payroll LO 9-5 Old Town Entertainment has two employees in Year 1 Clay earns $4.500 per month and Philip, the manager, earns $10.000 per month. Neither is paid extra for working overtime. Assume the Social Security tax rate is 6 percent on the first $110,000 of earnings and the Medicare tax rate is 1.5 percent on all earnings. The federal income tax withholding is 15 percent of gross earnings for Clay and 22 percent for Philip. Both Clay and Philip have been employed all year 315/357 points awarded Scored Required a. Calculate the net pay for both Clay and Philip for March b. Calculate the net pay for both Clay and Philip for December c. Is the net pay the same in March and December for both employees? d. What amounts will Old Town report on the Year 1W-2s for each employee? Complete this question by entering your answers in the tabs below. Req A and B ReqC Reg D What amounts will Old Town report on the Year 1 W-2s for each employee? (Do not round Intermediate calculations.) Amount Appearing on W-2 for Year 1 54000 Box 1 Box 2 Box 3 Box 4 Box Box 6 Wages, tips, and other compensation Federal income tax withheld Social security wages Social security tax withheld Medicare wages and lips Medicare tax with 8.100 $4.000 3.240 54,000 810 Prap Wages, tips, and other compe Box 2 Federal income tax withheld Social Security wages 120.000 26.400 10.000

How can I find the social security wages and tax withhled

Answer 1

Answer -

As per given information,

Social security tax = 6% (for the first $110000 of earnings)

Medicare tax = 1.5%

Clay gross earnings = $4500 per month

Federal income tax withholding = 15% of gross earnings of Clay = $4500 * 15% = $675

Philip gross earnings = $10000 per month

Federal income tax withholding = 22% of gross earnings of Philip = $10000 * 22% = $2200

a. Answer -

Net pay for March

	Net Pay
Clay	$3487.50
Philip	$7050

Calculation :

Clay-March
Gross earnings		$4500
Deductions :
Federal income tax	$675
FICA social security tax ($4500 * 6%)	$270
FICA medicare tax ($4500 * 1.5%)	$67.50
Total deductions		$1012.50
Net Pay		$3487.50
Philip-March
Gross earnings		$10000
Deductions :
Federal income tax	$2200
FICA social security tax ($10000 * 6%)	$600
FICA medicare tax ($10000 * 1.5%)	$150
Total deductions		$2950
Net Pay		$7050

b. Answer -

Net pay for December

	Net Pay
Clay	$3487.50
Philip	$7650

Calculation :

Clay-December
Gross earnings		$4500
Deductions :
Federal income tax	$675
FICA social security tax ($4500 * 6%)	$270
FICA medicare tax ($4500 * 1.5%)	$67.50
Total deductions		$1012.50
Net Pay		$3487.50
Philip-December
Gross earnings		$10000
Deductions :
Federal income tax	$2200
FICA medicare tax ($10000 * 1.5%)	$150
Total deductions		$2350
Net Pay		$7650

Social security tax is limited to $110000 and Philip' s total gross earning at the end of November is $110000 ($10000 * 11 months). Therefore Philip does not pay social security tax in December.

c. Answer -

No

Philip’s net pay is different in December because he does not pay social security tax in December (Social security tax is limited to $110000). Clay’s net pay is the same for both March and December because his gross earnings do not exceed $110,000 for the year.

d. Answer -

Account Appearing on W-2 for Year 1
Clay
Box 1	Wages, tips and other compensation ($4500 * 12 months)	$54000
Box 2	Federal income tax withheld ($54000 * 15%)	$8100
Box 3	Social security wages ($4500 * 12 months)	$54000
Box 4	Social security tax withheld ($54000 * 6%)	$3240
Box 5	Medicare wages and tips ($4500 * 12 months)	$54000
Box 6	Medicare tax withheld ($54000 * 1.5%)	$810
Philip
Box 1	Wages, tips and other compensation ($10000 * 12 months)	$120000
Box 2	Federal income tax withheld ($120000 * 22%)	$26400
Box 3	Social security wages [(10000 * 12 months = $120000) but social security tax is limited to $110000 earnings]	$110000
Box 4	Social security tax withheld ($110000 * 6%)	$6600
Box 5	Medicare wages and tips ($10000 * 12 months)	$120000
Box 6	Medicare tax withheld ($120000 * 1.5%)	$1800

Here,

Philip's gross earning for year 1 is $120000 ($10000 * 12 months).

But, the maximum earnings subject to social security taxes is $110000

Therefore, Social security wages is $110000 (the maximum limit) for Philip.

Then, Social security tax withheld is $6600 ($110000 * 6%).