Question

Use the following information for the Exercises below. (Static)

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BMX Company has one employee. FICA Social Security taxes are 6.2% of the first $137,700 paid to its employee, and FICA Medicare taxes are 1.45% of gross pay. For BMX, its FUTA taxes are 0.6% and SUTA taxes are 5.4% of the first $7,000 paid to its employee.
Gross Pay through August 31 Gross Pay for September
a. $ 6,400 $ 800
b. 2,000 2,100
c. 131,400 8,000
Exercise 9-7 (Static) Computing payroll taxes LO P2, P3

Answer 1

To calculate the deductions and taxes for an employee, we can use the given information. The Social Security deduction is 6.2% of the gross annual income, Medicare is 1.45% of the gross annual income, and federal and state taxes amount to 15% of the gross annual income.

Step-by-step explanation:

To calculate the deductions and taxes for an employee, we can use the given information. The Social Security deduction is 6.2% of the gross annual income, Medicare is 1.45% of the gross annual income, and federal and state taxes amount to 15% of the gross annual income. Let's calculate the deductions and taxes for each case:

1. Case a:

   Gross Pay through August 31: $6,400

   Gross Pay for September: $800

   Annual Income: $7,200

   Social Security Deduction: 6.2% of $7,200 = $446.40

   Medicare Deduction: 1.45% of $7,200 = $104.40

   Federal and State Taxes: 15% of $7,200 = $1,080

2. Case b:

   Gross Pay through August 31: $2,000

   Gross Pay for September: $2,100

   Annual Income: $4,100

   Social Security Deduction: 6.2% of $4,100 = $254.20

   Medicare Deduction: 1.45% of $4,100 = $59.45

   Federal and State Taxes: 15% of $4,100 = $615

3. Case c:

   Gross Pay through August 31: $131,400

   Gross Pay for September: $8,000

   Annual Income: $139,400

   Social Security Deduction: 6.2% of $137,700 (maximum cap) + 6.2% of $1,700 = $8,534.40

   Medicare Deduction: 1.45% of $139,400 = $2,021.30

   Federal and State Taxes: 15% of $139,400 = $20,910

Answer 2

In calculating deductions and taxes for payroll, Social Security tax is 6.2% up to a wage limit and Medicare is 1.45% without a limit. Self-employed individuals pay both parts of these taxes. Social Security tax is regressive due to a cap on taxable income.

Step-by-step explanation:

Calculating Payroll Taxes and Deductions

The subject matter involves calculating various payroll taxes and deductions, including Social Security tax, Medicare tax, and standard federal and state taxes for an employee's gross pay. When calculating these taxes for an individual who is employed, it's important to remember that the burden of payroll taxes is often shared between the employer and employee. The Social Security tax rate for an employee is typically 6.2% of gross annual income up to a wage limit, while the Medicare tax is 1.45% without a wage limit. Additionally, federal and state taxes can be estimated as 15% of the gross annual income, though this can vary based on numerous factors such as income bracket and location.

For someone who is self-employed or an independent contractor, the scenario is different. They carry the entire burden of Social Security and Medicare taxes, amounting to 12.4% and 2.9% respectively, since they must pay both the employee and employer portions. There is no wage limit for Medicare, but there is one for Social Security, which was set at $118,500 for 2015, adjusted periodically for inflation.

To answer the specific questions, for an individual who is self-employed and not incorporated, they must pay Self-Employment Tax, which includes both the employer and employee portion of Social Security and Medicare taxes. As for the nature of Social Security tax, it is regressive since it imposes a higher burden on lower-income earners due to the wage limit.