Old Town Entertainment has two employees in Year 1. Clay earns $3,600 per month, and Philip, the manager, earns $10,300 per month. Neither is paid extra for working overtime. Assume the Social Security tax rate is 6 percent on the first $130,000 of earnings and the Medicare tax rate is 1.5 percent on all earnings. The federal income tax withholding is 16 percent of gross earnings for Clay and 19 percent for Philip. Both Clay and Philip have been employed all year.
Old Town Entertainment has two employees in Year 1. Clay earns $3,600 per month, and Philip, the manager, earns $10,300 per month. Neither is paid extra for working overtime. Assume the Social Security tax rate is 6 percent on the first $130,000 of earnings and the Medicare tax rate is 1.5 percent on all earnings. The federal income tax withholding is 16 percent of gross earnings for Clay and 19 percent for Philip. Both Clay and Philip have been employed all year.
College Accounting (Book Only): A Career Approach
13th Edition
ISBN:9781337280570
Author:Scott, Cathy J.
Publisher:Scott, Cathy J.
Chapter7: Employee Earnings And Deductions
Section: Chapter Questions
Problem 7E
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Old Town Entertainment has two employees in Year 1. Clay earns $3,600 per month, and Philip, the manager, earns $10,300 per month. Neither is paid extra for working overtime. Assume the Social Security tax rate is 6 percent on the first $130,000 of earnings and the Medicare tax rate is 1.5 percent on all earnings. The federal income tax withholding is 16 percent of gross earnings for Clay and 19 percent for Philip. Both Clay and Philip have been employed all year.
Required
- Calculate the net pay for both Clay and Philip for March.
- Calculate the net pay for both Clay and Philip for December.
- Is the net pay the same in March and December for both employees?
- What amounts will Old Town report on the Year 1 W-2s for each employee?
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Step 1: Net Pay:
VIEWStep 2: (1) Calculate the net pay for both Clay and Philip for March:
VIEWStep 3: (2) Calculate the net pay for both Clay and Philip for December:
VIEWStep 4: (3) Determine if net pay the same in March and December for both employees:
VIEWStep 5: (4) Determine the amounts that Old Town will report on the Year 1 W-2s for each employee:
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