Question

An employee dies in March. In July, the company issues a check to the deceased employee's estate in the amount of $3,486.00 for unused vacation pay. When calculating federal income tax, the company uses the Optional Flat Rate Method for vacation payouts after or upon termination. Calculate the amount that must be withheld for federal income tax.

Answer 1

Using the Optional Flat Rate Method, 22% of the $3,486.00 vacation payout to a deceased employee's estate must be withheld for federal income tax, totaling $767.92.

Step-by-step explanation:

The question relates to the amount of federal income tax that must be withheld from a deceased employee's unused vacation pay using the Optional Flat Rate Method. As of 2021, the Optional Flat Rate for supplemental wages is typically 22%. Therefore, the withholding amount on the $3,486.00 vacation payout would be 22% of that total.

To calculate: $3,486 x 0.22 = $767.92

This means the amount that must be withheld for federal income tax from the $3,486.00 is $767.92.