9.1 B pg. 162 - 163 ONLY PROBLEMS # 2, 5, 9, 11, 14, 19, 21 Do not add Social Security and Medicare together.

For these problems use below:

Social Security is calculated at 6.2% of the first $142,800 gross pay for 2021. If the year-to-date is more than this cap, the employee will have no money deducted for Social Security from this paycheck and will have no money deducted for Social Security for the rest of the year.

Medicare is calculated at 1.45% of the entire gross no matter how much the employee has earned before.

Examples in book professor wants used:

B. Find the amounts of Social Security and Medicare for the current pay period for Exercise 9.1163 Use the 2021 tax rates to find Social Security and Medicare deductions for the following problems. 13. Philip earned $1,589 last week, and had year-to-date earnings of $108,894 for the year. 14. Bill earned $3,592 on his last biweekly check, and had year-to-date earnings of $107,841. 15. Linda earned $2,095 on her last check, and had year-to-date earnings of $28,338. 16. Laura earned $3,965 on her last check, and had year-to-date earnings of $146,338. 17. Grace had year-to-date earnings of $109,866, and earned $1,335 on her last check. 18. Tom had year-to-date earnings of $140,567, and earned $3,589 on his last check. 19. Frederick is married, earned $2,655 last week, and had year-to-date earnings of $141,344. 20. Jessie is single, earned $2,669 for the last two weeks, and her year-to-date earnings were $127,982. 21. Zebulon earned $3,258 on his last check, which brings his current year-to-date earnings up to $142,987. 22. Althea earned $2,598 on her last check, which brings her current year-to-date earnings up to $109,985. B. Find FICA Deductions The previous section of this chapter discussed the computation of gross earnings. Typically, employees do not receive the amount of their gross earnings in their paycheck, because various employment taxes, and possibly other benefits, are deducted. In addition, there are employment taxes which are paid directly by the employer, and not deducted from an employee's paycheck. Self-employed persons are also subject to employment taxes. Employment taxes are basically computed as a percentage of wages or income. However, taxable income is not always the same as gross income, since some wages are often excluded from tax. Tax rates and wage bases change annually, to reflect cost of living adjustments or the desires of Congress. Some taxes assess the same rate on every taxpayer, and some taxes use a scale of rates. In this section, we shall discuss flat taxes, where (almost) every taxpayer pays the same rate. Flat employment taxes include the FICA (Social Security and Medicare) taxes, the Self-Employment Tax, and the Federal Unemployment Tax. 148 Preparing Payroll Flat taxes may have an income ceiling, above which no income is taxed. In 1935, the U.S. Congress passed the Social Security Act, which provided basic retirement benefits to old age survivors. The portion of the act which mandates tax withholding is sometimes referred to as the Federal Insurance Contributions Act, or FICA. Since 1935, because of changes to the system, disability and medical benefits are also provided. Due to the increasing availability of benefits, the proportion of eligible recipients in the population, and the increasing cost of living, the revenue required from the FICA tax has also increased. From an original rate of 1% on each employee's first $3,000 of gross earnings in 1937 , the tax reached 7.65% on the first $51,300 of each employee's gross earnings in 1990. In the following year, the portion of the tax which provided for medical benefits was separated from the rest of the tax, so two separate computations became necessary. These are the Social Security tax (or Old Age Survivors and Disability Insurance, abbreviated OASDI) and the Medicare tax (or Hospital Insurance, sometimes abbreviated HI). Supplemental Medical Insurance, or SMI, is also part of the Medicare program, and is partially funded by the tax, and partially paid for by recipients of that program. Unfortunately, the combined FICA tax is sometimes called the Social Security tax, even in some official descriptions. This leads to confusion between the whole FICA tax and the part designated for OASDI. In this text, we shall use the term Social Security only for the OASDI portion of FICA. In 2011, due to the languishing economy, Congress legislated a reduction in the tax rate for the employee deduction for Social Security. Therefore, the 2021 rates for these taxes are: - Social Security, employee: 6.2% of the first $142,800 of gross wages - Medicare: 1.45% of all gross wages Employers will deduct the tax amounts, using these rates, from the gross earnings of their employees. Furthermore, employers much match the amount of both Social Security and Medicare that is deducted from the employee's pay. Both the employee deductions and the employer's shares will be forwarded to a financial institution authorized to collect these taxes. Although they are submitted together, Social Security and Medicare taxes are generally reported separately, since the tax returns for businesses require separate accounting for these two taxes. The Medicare tax is truly a flat tax, in which every taxpayer pays exactly the same rate of their gross income. The Social Security tax, however, has a wage ceiling, beyond which no tax is assessed. This creates three cases into which a taxpayer's paycheck may fall: A year-to-date wage will remain under the ceiling - year-to-date wage will change from under to over the ceiling - year-to-date wage is already beyond the ceiling The following trilogy of examples illustrates these three different cases. EXAMPLE 1 Brenda had $1,186 in gross earnings for her current pay period, and her year-to-date earnings were $104,582. How much will be deducted from her current paycheck for FICA taxes? SOLUTION The sum of her current and her year-to-date earnings, 104582+1186=105768 does not exceed the $142,800 ceiling (as it won't for most employees). Therefore, we tax all of her current earnings at the rates given above. The Social Security computation is: 11860.06273.53 Section 9.1 Gross Pay and Net Pay 149 and the Medicare computation is: 11860.014517.20 Brenda's Social Security and Medicare tax deductions are $73.53 and $17.20, respectively. Chesley had gross earnings of $3,152 for her current pay period, and her year-to-date earnings were $140,402. How much will be deducted for FICA taxes for this pay period? Solution The sum of Chesley's current and year-to-date earnings, 140402+3152=143554 does exceed the $142,800 earnings ceiling for Social Security tax. Only that portion of the current $3,152 earnings below the $142,800 ceiling can be taxed for Social Security. The Social Security computation is: 142800140402=2398 23980.062=148.676whichroundsto$148.68 All of her current earnings are taxed for Medicare. 31520.014545.70 Chesley's Social Security and Medicare tax deductions for this pay period are $148.68 and $45.70, respectively. EXAMPLE 3 Danielle had gross earnings of $4,251 for the current pay period, and had year-to-date earnings of $145,600. How much will be deducted from her check for FICA taxes? SOLUTION Her year-to-date earnings exceed the Social Security wage ceiling of $142,800, so her current earnings are not subject to Social Security tax. But all of her current earnings are taxed for Medicare. 42510.014561.64 Therefore, Danielle's Medicare deduction is $61.64, and she has $0 deducted for Social Security tax