Question

The total payroll of Teeter Company for the month of October, 2010 was $360,000, of which $90,000 represented amounts paid in excess of $100,000 to certain employees. $300,000 represented amounts paid to employees in excess of the $7,000 maximum subject to unemployment taxes. $90,000 of federal income taxes and $9,000 of union dues were withheld. The state unemployment tax is 1%, the federal unemployment tax is .8%, and the current F.I.C.A. tax is 7.65% on an employee's wages to $100,000 and 1.45% in excess of $90,000. What amount should Teeter record as payroll tax expense?

a. $118,620.
b. $113,040.
c. $23,040.
d. $28,440.

Answer 1

The amount Teeter Company should record as payroll tax expense is $13,594.

Step-by-step explanation:

To calculate the payroll tax expense, we need to determine the amounts subject to the different tax rates. First, the excess amounts paid to certain employees over $100,000 are not subject to the F.I.C.A. tax. Therefore, the taxable amount for F.I.C.A. tax is $100,000 ($360,000 - $90,000). This results in a F.I.C.A. tax of $7,650.

Next, the amounts paid to employees in excess of the $7,000 maximum subject to unemployment taxes are subject to both state and federal unemployment taxes. The taxable amount for state unemployment tax is $360,000 ($360,000 - $7,000), resulting in a state unemployment tax of $3,600. The taxable amount for federal unemployment tax is $293,000 ($360,000 - $7,000 - $60,000), resulting in a federal unemployment tax of $2,344.

Therefore, the total payroll tax expense is the sum of the F.I.C.A. tax, state unemployment tax, and federal unemployment tax, which is $7,650 + $3,600 + $2,344 = $13,594.