psb 4-1 calculate taxable earnings for social security tax
PSb 4-1 Calculate Taxable Earnings for Social Security Tax For each employee listed below, calculate the taxable eamings for Social Security tax for the described pay period. Note that none of these employees exceed the Social Security taxable wage base during the year. NOTE: For simplicity, all calculations throughout this exercise, both intermediate and final, should be rounded to two decimal places at each calculation 1: Dustin Woodward earmed gross pay of $2,100 during a recent pay period. He contributes 10% of gross pay to a 403(b) retirement plan and $65 each pay period to a cafeteria plan. Taxable earnings $ 130.20 2: Olivia Sutter earned gross pay of $970 during a recent pay period. She contributes 6% of gross pay to a 401(k) retirement plan and 2.5% of gross pay to a dependent care flexible spending account. Taxable earnings $ 3: Ana Grantham earned gross pay of $1,420 during a recent pay period. She contributes $40 to a flexible spending account and 2.5 % of gross pay to a separate dependent care flexible spendinglaccount Taxable eamings $ He contributes 13 % of gross pay to a 401(k) retirement plan. Paul Bemstein eamed gross pay of $1,200 during a recent pay period. 4 Taxable earnings $ aSecurity Tax Security taxWas initially established to provide enmployees with retirement benefits. i oldaxs Also referred to as OASDI (old age, survivors, and disability insurance), Social Over time the program wa parded toprovinle inancial support to empitoyee survivors and to disabled employees. Initially the Social Security tax rate was 1% of taxable earnings. This rate was in place fromm 1937-1949, after which it bas steadily increased over the years. A number of credits have, for certain years, been passed into law, and have reduced the effective Social Security tax rate remitted on the employee's behalf. The most recent tax rates (before taking these credits into account) are shown here. Social Security Tax Rate Yearts) Yearts) Social Security Tax Rate 4.95% 1974-1977 1982-1983 5.40% 5.05 % 1978 1984-1987 5.70 % 5.08 % 1988-1989 1979-1980 6.06% 5.35% 1981 1990-2018 6.20% NOTE! Whereas employees are permitted to increase federal and state income tax withholdings by a set amount each pay period, this is neither necessary nor permissible for Social Security tax. ocial Security Wage Base Aside from the applicable Social Security tax rate, which is presently 6.2 %, you must also consider the earnings threshold over which Social Security Once an employee's year-to-date taxable earnings reaches this threshold (referred to as the Social Security wage base), no further Social Security tax is withheld until the beginning of the following year. The result is that no Social Security tax is by the employee after that employee earns a specified amount during the year. From 1937-1950, the first wage base was $3,000. Therefore, Social Security on the first $3,000 earned by each employee during these years. Annual earnings above $3,000 for each employee Security tax rate, the wage base has increased steadily since that time. As of 2018, tax is not levied. paid tax was levied were not subject to the tax. Similar to the Social the wage base is $128,400. Social Security Wage Base Year(s) Year(s) Social Security Wage Base $113,700 2013 2006 $94,200 $117,000 2014 2007 $97,500 2015-2016 $118,500 2008 $102,000 $127,200 2017 2009-2011 $106,800 $128,400 2018 2012 $110,100 An alternate overview of the Social Security tax calculation can be seen in the flow- chart below Is prior period taxable pay for SS tax > $128,400? No Yes Is prior period taxable pay for SS tax plus SS Tax= $0 current period taxable pay for SS tax> $128,400? Yes No sS Tax= ($128,400- prior period taxable pay for SS tax) 6.2 % SS Tax(current period taxable pay for SS tax) 6.2 %
