Question

Most people know that social security and medicare taxes are deducted from their paychecks. As a new restaurant owner, you learn that you have to match these payments as the employer. You have budgeted a yearly payroll of $500,000. The taxes are 6.25% for social security and 1.4% for medicare. What will your yearly payroll really cost you with these taxes added?

Answer 1

$538,250.

Step-by-step

$538,250.

Answer 2

The yearly payroll will cost the employer $538,250.

Explanation:

a) Data and Calculations:

Budgeted payroll = $500,000

Social security tax rate = 6.25%

Medicare tax rate = 1.4%

Social security tax = $31,250 ($500,000 * 6.25%)

Medicare tax amount= $7,000 ($500,000 * 1.4%)

Total taxes amount = $38,250

The total yearly payroll cost should be put at $538,250 ($500,000 + 38,250). This means that as the employees pay taxes amounting to $38,20, the employer will also pay matching taxes amounting to $38,250.