Question

Mattola Company is giving each of its employees a holiday bonus of $200 on December 13, 20-- (a nonpayday). The company wants each employee's check to be $200. The supplemental tax percent is used.

Nobody has capped for OASDI prior to the bonus check.


a. What will be the gross amount of each bonus if each employee pays a state income tax of 2.8% (besides the other payroll taxes)? You may need to add one penny to the gross so that net bonus exactly equals $200. Round your calculations and final answers to the nearest cent.


b. What would the net amount of each bonus check be if the company did not gross-up the bonus? Round your intermediary calculations to the nearest cent.

Answer 1

The gross amount of each bonus is approximately $206.42. If the company didn't gross-up the bonus, the net amount would be $200.

Step-by-step explanation:

To calculate the gross amount of each bonus, we need to reverse engineer the net bonus of $200. Since the state income tax is 2.8%, we need to calculate the gross amount that, when taxed at 2.8%, results in a net bonus of $200.

Let's assume the gross amount is x. We can set up the equation: x - 2.8% of x = $200. To solve for x, first convert 2.8% to a decimal by dividing it by 100.

x - 0.028x = $200. Simplifying the equation gives us: 0.972x = $200. Divide both sides by 0.972 to isolate x. The final gross amount of each bonus will be approximately $206.42.

If the company didn't gross-up the bonus, the net amount of each bonus check would be $200. The employee would have to pay the state income tax on their own without any adjustment.

Answer 2

a. Gross amount of each bonus = $309.84

b. Net amount of each bonus = $129.10

Step-by-step explanation:

Since the supplemental tax percent is used, the following are the relevant tax rates to be applied in the calculations:

STP = Supplemental tax percent = 25%

FICASO = Federal Insurance Contributions Act (FICA) social security tax = 6.2%

FICAM = Federal Insurance Contributions Act (FICA) Medicare tax = 1.45%.

SIT = State income tax = 2.8%

We therefore proceed as follows:

a. What will be the gross amount of each bonus if each employee pays a state income tax of 2.8% (besides the other payroll taxes)? You may need to add one penny to the gross so that net bonus exactly equals $200. Round your calculations and final answers to the nearest cent.

Given the tax rates above, the following formula is used to calculate the gross amount of each bonus:

Gross amount of each bonus = Holiday bonus amount / (100% - STP - FICASO - FICAM - SIT) …… (1)

Substituting the relevant values into equation (1), we have:

Gross amount of each bonus = $200/ (100% - 25% - 6.20% - 1.45% - 2.8%)

Gross amount of each bonus = $200 / 64.55%

Gross amount of each bonus = $309.837335398916

To the nearest cent which implies to two decimal places, we have:

Gross amount of each bonus = $309.84

b. What would the net amount of each bonus check be if the company did not gross-up the bonus? Round your intermediary calculations to the nearest cent.

The net amount of each bonus can be calculated using the following formula:

Net amount of each bonus = Holiday bonus amount * (100% - STP - FICASO - FICAM - SIT) …… (2)

Substituting the relevant values into equation (2), we have:

Net amount of each bonus = $200 * (100% - 25% - 6.20% - 1.45% - 2.8%)

Net amount of each bonus = $200 * 64.55%

Net amount of each bonus = $129.10