Question

Use the following tax rates, ceiling and maximum taxes:

Employee and Employer OASDI: 6.20% $127,200 $7,886.40
Employee* and Employer HI: 1.45% No limit No maximum
Self-employed OASDI: 12.4% $127,200 $15,772.80
Self-employed HI: 2.9% No limit No maximum
*Employee HI: Plus an additional 0.9% on wages over $200,000. Also applicable to self-employed.
Rounding Rules: Unless instructed otherwise compute hourly rate and overtime rates as follows:
Carry the hourly rate and the overtime rate to 3 decimal places and then round off to 2 decimal places (round the hourly rate to 2 decimal places before multiplying by one and one-half to determine the overtime rate).
If the third decimal place is 5 or more, round to the next higher cent.
If the third decimal place is less than 5, drop the third decimal place.
Also, use the minimum hourly wage of $7.25 in solving these problems and all that follow.
Jax Company's (a monthly depositor) tax liability (amount withheld from employees' wages for federal income tax and FICA tax plus the company's portion of the FICA tax) for July was $1,210. No deposit was made by the company until August 24, 20--. Determine the following:
Note: Round your answers to the nearest cent and assume 365 days in a year.
a. The date by which the deposit should have been made August 25
b. The penalty for failure to make timely deposit $________
c. The penalty for failure to fully pay tax when due $________
d. The interest on taxes due and unpaid (assume a 4% interest rate) $________

Answer 1

A. 15th August

B. 60.5

C. 6.05

D. 1.19

Step-by-step explanation:

Let assume that during the lookback period, you reported a tax rate of $50000 or less. It implies that you're a monthly depositor(based on schedule) and all taxes much be deposited on or before the 15th day of the next month.

Inability to meet up with the timely deposit has penalty based on their tiers.

For 1 - 5 days late = 2% of upaod depsot

6 - 15 late = 5% on tax payment

15 days late = 10% on deposits

10 days late of IRS = 15% on deposit

Since no deposits were made till Aug 24, then deposit has been delayed by 9 days (i.e. Aug 15 - 24)

Thus, the penalty for making timely deposit = 1210 × 0.05 = 60.5

Inability to pay the penalty = 0.5 percent per month ( for unpaid taxes).

So, the penalty for failure of fully paid tax = 120 × 0.5% = 6.05

Assuming a 4% interest rate; the interest on taxes due & unpaid is

= 1210 × 0.04 × 9/365

= 1.19

Therefore, the total penalty imposed = 60.5 + 6.05 + 1.19 = 67.74