An employee receives an hourly rate of $45, with time and a half for all hours worked in excess of 40 during the week. Payroll data for the current week are as follows: hours worked, 48; federal income tax withheld, $950; Social security tax rate, 6.0%; and Medicare tax rate, 1.5%; state unemployment compensation tax, 3.4% on the first $7,000; federal unemployment compensation tax, 0.8% on the first $7,000. Calculate the employer's payroll tax expense under the following circumstances. Round your answers to two decimal places.

Answer and Explanation:

For computing the employer payroll tax expense first we have to do The following calculations

Normal earnings is

= $45 × 40

= $1,800

Bonus earnings is

= (48 – 40) × $45 × 1.5

= 8 × 45 × 1.5

= $540

And, the  

Gross earnings is

= $1,800 + $540

= $2,340

a.

Payroll tax = Social security + Medicare + SUTA + FUTA

= ($2,340 × 6%) + ($2,340 × 1.5%) + ($2,340 × 3.4%) + ($2,340 × 0.8%)

= $140.4 + $35.1 + $79.56 + $18.72

= $273.78  

b. Gross earnings applicable for SUTA and FUTA is

= Limit - Cumulative earnings

= 7,000 - 6,200

= $800

Payroll tax = Social security + Medicare + SUTA + FUTA

= ($2,340 × 6%) + ($2,340 × 1.5%) + ($800 × 3.4%) + ($800 × 0.8%)

= $140.4 + $35.1 + $27.2 + $6.4

= $209.10

c.  For this case, there will be no SUTA and FUTA, as the cumulative earnings $118,700 is more than the prescribed limit $7,000.

Payroll tax = Social security + Medicare + SUTA + FUTA

= ($2,340 × 6%) + ($2,340 × 1.5%) + (0 × 3.4%) + (0 × 0.8%)

= $140.4 + $35.1 + 0 + 0

= $175.50

Note: As income tax is not relevant here, as this is employee’s part only.