Question

Your boss approaches you in mid-December and requests that you pay certain employees their gross pay amount as if there were no deductions as their Christmas bonuses. None of the employees have reached the Social Security wage base for the year. What is the gross-up amount for each of the following employees?

a) The tax rate on bonuses is 28%.
b) The Social Security (6.2%) and Medicare taxes (1.45%) must be added to this rate.
c) Yves St. John, regular gross pay per period $1425 Kim Johnson, regular gross pay per period $2,400
d) Michael Hale, regular gross pay per period $2,240

Answer 1

To calculate the gross-up amount for each employee, subtract the Social Security wage base from their regular gross pay to get their taxable income. Multiply the taxable income by the tax rate on bonuses to calculate the gross-up amount.

Step-by-step explanation:

To calculate the gross-up amount for each employee, we need to consider the tax rate on bonuses (28%) and add the Social Security tax rate (6.2%) and Medicare tax rate (1.45%). First, let's calculate the taxable income for each employee by subtracting the Social Security wage base for the year from their regular gross pay.

• Yves St. John: $1,425 - $142,800 = $1,282.55
• Kim Johnson: $2,400 - $142,800 = $2,257.45
• Michael Hale: $2,240 - $142,800 = $2,097.45

Next, we calculate the tax amount for each employee by multiplying their taxable income by the tax rate on bonuses.

• Gross-up amount for Yves St. John: $1,282.55 * 0.28 = $359.29
• Gross-up amount for Kim Johnson: $2,257.45 * 0.28 = $632.07
• Gross-up amount for Michael Hale: $2,097.45 * 0.28 = $587.38

Therefore, the gross-up amount for Yves St. John is $359.29, for Kim Johnson is $632.07, and for Michael Hale is $587.38.

Answer 2

Yves St Jones would be payed $2,214.45

Kim Johnson would be payed $3,729.60

Michael Hale would be payed $3,480.96

Step-by-step explanation:

Tax rate = Bonus + Social Security + Medicare Tax

= 28.00% + 6.20% + 1.45%

Total Tax rate = 35.65%

Net pay ratio = 100% - Tax rate

= 100% - (28 + 6.2 + 1.45)% = 64.35%

Gross pay = Net pay ÷ Net pay ratio

Employee Regular pay per period Net Pay ratio Gross pay

Yves St Jones $1,425 64.35% $2,214.45

Kim Johnson $2,400 64.35% $3,729.60

Michael Hale $2,240 64.35% $3,480.96