Andie earned $680.20 during the most recent weekly pay period.She is single with 3 withholding allowances and needs to decide between contributing 2.5% and $25 to her 401(k)plan.If she chooses the method that results in the lowest taxable income,how much will be withheld for federal income tax (based on the following table)?
A) $52.00
B) $60.00
C) $49.00
D) $47.00

Question

Andie earned $680.20 during the most recent weekly pay period.She is single with 3 withholding allowances and needs to decide between contributing 2.5% and $25 to her 401(k)plan.If she chooses the method that results in the lowest taxable income,how much will be withheld for federal income tax (based on the following table)? 
A) $52.00 
B) $60.00 
C) $49.00 
D) $47.00

Quizplus · Accepted Answer

To determine the best choice, we need to calculate Andie's taxable income under each option.

Option 1: 2.5% contribution to 401(k) 
- 2.5% of $680.20 = $17.01 
- Taxable income = $680.20 - $17.01 - $12,200 (standard deduction for single filers) - (3 x $4,200 for withholding allowances) = $639.99 
- Using the tax table, the federal income tax withheld would be $49.00

Option 2: $25 contribution to 401(k) 
- Taxable income = $680.20 - $25 - $12,200 - (3 x $4,200) = $633.20 
- Using the tax table, the federal income tax withheld would be $60.00

Therefore, Option 1 results in a lower taxable income and a lower amount withheld for federal income tax. The best choice is to contribute 2.5% to her 401(k).

Andie Earned $680