Question

Calculation of Social Security Tax and Marginal, Average and Effective Tax Rates on Social Security Taxes (LO. 1)

Rory earns $70,000 per year as a college professor. Latesia is a marketing executive with a salary of $140,000. With respect to the Social Security tax (OASDI: 6.2%; MHI: 1.45%) calculate the following:

(Hint: OASDI 6.2% tax is only on max of $128,400 for the year.)

When required, round the total taxes to two decimal places.

a.

Rory's total FICA taxes: $
Latesia's total FICA taxes: $
Rounding instructions for parts (b), (c), and (d): When required, round the tax rates to two decimal places.

b.

Rory's marginal tax rate: %
Latesia's marginal tax rate: %
c.

Rory's average tax rate: %
Latesia's average tax rate: %
d.

Rory's effective tax rate: %
Latesia's effective tax rate: %

Answer 1

Rory wages tax: $ 5,355.00

Latesia wages tax $ 9,990.80

marginal tax-rate Rory: 7.65%

while Latesia: 1.45%

Rory average tax rate 7.65‬%

Latesia Average tax-rate 7.14%

Step-by-step explanation:

Rory wages tax:

70,000 x (0.062 + 0.0145) = $5,355

Latesia wages tax

128,400 x 0.062 + 140,000 x 0.0145 =

7,960.8 + 2,030 = 9,990.8

marginal tax-rate Rory will be taxes in full for his next dollar of income: 7.45%

while Latesia already capped OASDI therefore it will be taxes only for MHI: 1.45%

effectiver/average tax rate:

5,355 / 70,000 = 0,0765‬

9,990.8 / 140,000 = 0,0713628