Richard Gaziano is a manager for Health Care Inc Health Care

Richard Gaziano is a manager for Health Care, Inc. Health Care deducts Social Security, Medicare, and FIT (by percentage method) from his earnings. Assume a rate of 6.2% on $110,100 for Social Security and 1.45% for Medicare. Before this payroll, Richard is $1,000 below the maximum level for Social Security earnings. Richard is married, is paid weekly, and claims 2 exemptions.

What is Richard’s net pay for the week if he earns $1,450?

Solution

1) His gross weekly pay before any deductions is $1,300. He owes social security tax on $1000 of that amount. This calculates as: $1450 x .062 = $89.9(Do not deduct yet)

2) His owes Medicare tax on all of the gross pay, which calculates as $1450x .0145 = $21.02 (Do not deduct yet)

3) Now calculate his withholdings from his weekly pay. The textbook says the withholding amount for someone who is paid weekly with one exemption is $70.19. Richard has 2 exemptions, so we multiply by 2: $70.19 x 2 = $140.38

3) We are still completing our withholding calculation. We subtract the allowance above from his GROSS pay: $1450- $140.38 = $1309.62

4) Now we have to deduct the tax withholding for a married person who is paid weekly, which will require looking at table 9.2 of the textbook on page 242. It states that a married person paid weekly (top right box) who receives OVER $461 but NOT OVER $1455 is taxed $30.70 plus 15% of any excess over $461.

5) First, we see how much money he is paid in excess of $461: $1309.62 - $461 = $848.62

6) He will pay the tax of $30.70 AND the 15% tax on the amount above, which calculates as: $30.70 + $848.62 (.15) = $158

7) Now we can take all deductions from his gross pay and see what his net pay is on his $1300 paycheck, which calculates as: $1450(gross pay) - $89.9(social security tax) - $21.02med tax) - $158 federal tax withholding = $1181.08 NET PAY!!