Question

George Clausen (age 48) is employed by Kline Company and is paid a salary of $43,004. He has just decided to join the company's Simple Retirement Account (IRA form) and has a few questions. Answer the following for Clausen:______.

a. What is the maximum that he can contribute into this retirement fund?
b. What would be the company's contribution? Round your answer to the nearest cent.
c. What would be his weekly take-home pay if he contributes the maximum allowed retirement contribution (married, 2 allowances, wage-bracket method, and a 2.3% state income tax on total wages)? Round your calculations and answer to the nearest cent.
d. What would be his weekly take-home pay without the retirement contribution deduction? Round your calculations and answer to the nearest cent.

Answer 1

a. As per the relevant provisions of IRS, the maximum amount of contribution that can be made to Simple Retirement Account (IRA form) for the year 2016 by an employee is $12,500

b. The maximum amount of contribution that can be made to the Simple Retirement Account according to the provisions of IRS (2016) by the company is 3% of total compensation earned by the employee. So the total amount of company's contribution would be $1290.12 ($43,004*3%).

c. Weekly Pay (43,004/52) 827

Less: Weekly Retirement Contribution 240.38 (12,500/52)

Weekly Wages 586.62

Less

FICA Tax (827*6.2% + 827*1.45%) 63.2655

Federal Income Tax (Refer to Weekly 58

Wage Table for Married Persons, Column

for 2 Allowances)

State Income Tax (827*2.3%) 19.021

Weekly Take Home Pay $446.33

d. Weekly Pay (43,004/52) 827

Less: FICA Tax (827*6.2% + 827*1.45%) 63.2655

Federal Income Tax (Refer to Weekly 58

Wage Table for Married Persons,

Column for 2 Allowances)

State Income Tax (827*2.3%) 19.021

Weekly Take Home Pay $686.71