Question

Assume the company decided to make a profit-sharing contribution that was integrated with Social Security, with an integration level equal to the Social Security wage base. If the base percentage was 10 percent with a maximum excess percentage, how much would be contributed to the plan on behalf of Jesse (disregard the salary deferral)?

Answer 1

To calculate the profit-sharing contribution integrated with Social Security, consider the integration level equal to the Social Security wage base. In this case, the contribution on behalf of Jesse would be $10,000.

Step-by-step explanation:

The profit-sharing contribution integrated with Social Security can be calculated by considering the integration level equal to the Social Security wage base. Since the base percentage is 10 percent with a maximum excess percentage, we first need to determine Jesse's gross annual income. Let's assume it is $100,000.

Next, we calculate the Social Security tax by multiplying Jesse's income by 6.2%. In this case, it will be $6,200.

To integrate the profit-sharing contribution, we need to consider the Social Security wage base, which is the maximum income subject to Social Security tax. According to the provided information, the wage base is $137,700 in 2020.

Since Jesse's income is below the wage base, the profit-sharing contribution on behalf of Jesse would be 10 percent of Jesse's income, which is $10,000.