Question

For this activity, you are the sole owner of a small printing business, known as New Bloomsbury. Over the past year, New Bloomsbury’s business has grown unexpectedly, especially given the rise of digital publishing, and you were forced to respond to the increase in demand. In response, you hired two new employees to help you complete customer orders, and today it’s time to prepare paychecks for your new employees and you. You know that a certain amount needs to be withheld from each employee’s pay to cover payroll taxes for Social Security and Medicare. Based on what you learned in this unit, you can calculate FICA (12.4%, with 6.2% paid by the employee and 6.2% paid by the employer) and MEDIFICA (2.9%, with 1.45% paid by the employee and 1.45% paid by the employer) for your two employees and you. Here’s how much each of you were paid for the current payroll period: Your pay: $3,000 Employee 1’s pay: $1,600 Employee 2’s pay: $1,300 Remember, if you are self-employed, you must withhold the total percentage of the payroll taxes from your income (essentially, you pay both the employee and the employer’s contributions). Use complete sentences to answer the following questions. Please show your work. How much must you withhold from your own paycheck to cover each of the following payroll taxes? FICA MEDIFICA How much must you withhold from Employee 1’s paycheck to cover payroll taxes for each of the following? FICA MEDIFICA How much must you withhold from Employee 2’s paycheck? FICA MEDIFICA

Answer 1

For the owner's pay of $3,000, FICA taxes withheld are $372 and MEDIFICA taxes are $87. For Employee 1 with a pay of $1,600, $99.20 for FICA and $23.20 for MEDIFICA should be withheld. For Employee 2 earning $1,300, $80.60 for FICA and $18.85 for MEDIFICA should be withheld.

Step-by-step explanation:

To calculate the payroll taxes to be withheld from each paycheck, let’s look at each person's earnings and apply the given rates:

Your pay: $3,000

As you are the owner and self-employed, you must pay both the employee and employer portions for FICA and MEDIFICA. So, for FICA you have to withhold 12.4% and for MEDIFICA 2.9%.

• FICA: $3,000 x 12.4% = $372
• MEDIFICA: $3,000 x 2.9% = $87

Employee 1’s pay: $1,600

For employees, you withhold half and the employer (business) pays the other half:

• FICA: $1,600 x 6.2% = $99.20
• MEDIFICA: $1,600 x 1.45% = $23.20

Employee 2’s pay: $1,300

Calculate payroll taxes exactly as with Employee 1:

• FICA: $1,300 x 6.2% = $80.60
• MEDIFICA: $1,300 x 1.45% = $18.85