Question

Required information Use the following information for the Exercises below. The following information applies to the questions displayed below.] BMX Company has one employee. FICA Social Security taxes are 6.2% of the first $128,400 paid to its employee, and FICA Medicare taxes are 1.45% of gross pay. For BMX, its FUTA taxes are 0.6% and SUTA taxes are 5.4% of the first $7,000 paid to its employee. Gross Pay through August 31 $ 5,000 2,250 122,600 Gross Pay for September $2,100 2,350 8,500 0 0 Exercise 9-5 Computing payroll taxes LO P2, P3 Compute BMX's amounts for each of these four taxes as applied to the employee's gross earnings for September under each of three separate situations (a), (b), and (C). (Round your answers to 2 decimal places.)

The 42 on FUTA is wrong Please correct me and explain your answers.

Answer 1

BMX’s amounts for each of these four taxes as applied to the employee’s gross earnings
a)
Tax	September earnings subject to tax (a)	Tax rate (b)	Tax Amount (a x b)
FICA – Social Security tax    [($128,400 - $5,000) or $2,100 whicher is lower] x 6.20%	$2,100	6.20%	$130.20
FICA – Medicare tax             [Entire gross pay is taxable]	$2,100	1.45%	$30.45
FUTA                                     [($7,000 - $5,000) or $2,100 whichever is lower] x 0.60%]	$2,000	0.60%	$12.00
SUTA                                     [($7,000 - $5,000) or $2,100 whichever is lower] x 5.40%]	$2,000	5.40%	$108.00
b)
Tax	September earnings subject to tax (a)	Tax rate (b)	Tax Amount (a x b)
FICA – Social Security tax    [($128,400 - $2,250) or $2,350 whicher is lower] x 6.20%	$2,350	6.20%	$145.70
FICA – Medicare tax             [Entire gross pay is taxable]	$2,350	1.45%	$34.08
FUTA                                     [($7,000 - $2,250) or $2,350 whichever is lower] x 0.60%]	$2,350	0.60%	$14.10
SUTA                                     [($7,000 - $2,250) or $2,350 whichever is lower] x 5.40%]	$2,350	5.40%	$126.90
c)
Tax	September earnings subject to tax (a)	Tax rate (b)	Tax Amount (a x b)
FICA – Social Security tax    [($128,400 - $122,600) or $8,500 whicher is lower] x 6.20%	$5,800	6.20%	$359.60
FICA – Medicare tax             [Entire gross pay is taxable]	$8,500	1.45%	$123.25
FUTA                                    [Cumulative earnings are more than $7,000]	$0
SUTA                                   [Cumulative earnings are more than $7,000]	$0

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Taxes to be withheld from gross Pay (Employee – Paid Taxes)
	September earnings subject to tax (a)	Tax rate (b)	Tax Amount (a x b)
Federal Income tax			$90.00
FICA – Social Security tax	$2,100	6.20%	$130.20
FICA – Medicare tax	$2,100	1.45%	$30.45
Total taxes withheld			$250.65

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Employer Payroll taxes	September earnings subject to tax (a)	Tax rate (b)	Tax Amount (a x b)
FICA – Social Security tax	$2,100	6.20%	$130.20
FICA – Medicare tax	$2,100	1.45%	$30.45
FUTA                                     [($7,000 - $5,000) or $2,100 whichever is lower] x 0.60%]	$2,000	0.60%	$12.00
SUTA                                     [($7,000 - $5,000) or $2,100 whichever is lower] x 5.40%]	$2,000	5.40%	$108.00
Total Payroll Taxes Expense			$280.65

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Journal entry to record the Employer’s payroll taxes and its related payroll liabilities
Date	General Journal	Debit	Credit
Sept. 30	Payroll Tax Expense	$280.65
	FICA - Social Security tax Payable		$130.20
	FICA - Medicare tax Payable		$30.45
	Federal unemployment taxes Payable		$12.00
	State unemployment taxes Payable		$108.00
	(To record payroll taxes and related payroll liabilities)

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Note: 1 - FICA Social Security's tax FICA - social security tax is payable on maximum wages of $128,400. Once an employee's year to date earnings or cumulative earnings exceed the wage base of $128.400, no additional Social Security tax is to be withheld from the employee's earnings. So, before calculating the FICA - social security tax, we have to check whether the September earnings along with cumulative earnings until August is exceeding $128,400 or not. If September earnings + cumulative earnings until August is exceeding $ 128,400, then Social Security tax= [($128,400 - Cumulative earnings until August) or gross salary whichever is lower] x 6.20%. and if it is not, then Social Security tax = Gross pay during September x 6.20% Note 2 - FICA - Medicare tax Medicare tax is always payable on gross pay. Medicare tax = Gross pay x 1.45%

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Note 3 - FUTA and SUTA taxes *To be paid by employer only. *Maximum salary subject to FUTA tax & SUTA tax is $7,000. FUTA tax If September earnings + cumulative earnings until August is exceeding $7,000, then FUTA tax= [($7,000 - Cumulative earnings until August) or gross salary whichever is lower] x 0.6%. and if it is not, then FUTA tax = Gross pay during September x 0.6% SUTA tax: If September earnings + cumulative earnings until August is exceeding $7,000, then SUTA tax = [($7,000 - Cumulative earnings until August) or gross salary whichever is lower] x 5.40%. and if it is not, then SUTA tax = Gross pay during September x 5.40% Once an employee's year to date earnings exceed the wage base of $7,000, no additional FUTA tax & SUTA would be payable by employer.