Reese earns 140000 She defers 10000 into her 401k traditiona

Reese earns $140,000. She defers $10,000 into her 401(k) traditional account and $5,000 into her 401(k) Roth account. Which of the following statements is/are true?

1. $130,000 of earnings is subject to FICA.

2. Her W-2 wages subject to Federal income tax equals $125,000.

a. 1 only.

b. 2 only.

c. Both 1 and 2.

d. Neither 1 nor 2.

Solution

401k contributions will not reduce FICA taxes, hence earnings subject to FICA taxes are not 130000 rather it is full 140000.

W-2 wages subject to federal income tax= 140000-10000= 130000

Roth contributions are not tax deductible, hence 5000 is not tax deductible.

both statements are wrong

d. neither 1 nor 2 option is correct