Question

John Jansen, an employee of Redwood Company, had gross earnings for the month of May of $4,000, FICA taxes are 8% of gross earnings (all earnings are subject), federal income taxes amount to $675 for the month, state income taxes are 3% of gross earnings, and Jansen authorized voluntary deductions of $5 per month to the United Way. What is the net pay for John Jansen?

A. $3,680
B. $2.880
C. $2,885
D. $3,205

Answer 1

The correct answer is B) 2,880

Step I - Ascertain All Pre Tax Deductions

Deduction 1 - Voluntary Deduction

This is given as $5. This is the only pretax deduction given.

To obtain John Jansens net pay, first we need to establish all the other deductions.

Deduction 2 - FICA Taxes.

FICA means “Federal Insurance Contributions Act.” FICA tax is mandatorily deducted from workers' paychecks to pay for the Social Security retirements and Medicare (Hospital Insurance) benefits for elderly Americans.

FICA Tax = 8% of Gros Earnings

Therefore FICA Tax =
`(8 X 3995)/(100)`

FICA Tax = $319.60

Deduction 3 - Federal Income Tax

This has already been given as $ 675

Deduction 4 - State Income Tax

This is given as 3% of gross earnings.

That is 3995 x (3/100) or

=
`(3 X 3995)/(100)`

= $119.85

Step 2 - To calculate the net pay, we need to seperate pre-tax deductions from after tax deductions.

The only pre tax item we have on the list is deduction 1 which is Voluntary deduction of $5.

Therefore Net Pay for John Jansen is ((Gross Pay Less Pretax Deductions) - Sum of other Taxes)

= [($4000 - $5) - ($319.60+$675+$119.85)

=$3,995 - $1,114.45

= $2,880.55 or $2 880 approximately.

Cheers!