Action Travel has 10 employees each working 40 hours per week and earning $20 an hour.Federal income taxes are withheld at 15% and state income taxes at 6%.FICA taxes are 7.65% and unemployment taxes are 3.8% of the first $7,000 earned per employee.What is the actual direct deposit of payroll for the first week of January?
A)$5,404.
B)$5,708.
C)$4,792.
D)$8,000.

Question

Quizplus · Accepted Answer

- Each employee earns $800 per week ($20 x 40 hours).
- Federal income tax: 15% x $800 = $120.
- State income tax: 6% x $800 = $48.
- FICA taxes: 7.65% x $800 = $61.20.
- Unemployment taxes: 3.8% x $7,000 = $266.
- Total deductions per employee: $120 + $48 + $61.20 + $266 = $495.20.
- Total payroll cost: $800 x 10 = $8,000.
- Total deductions for all employees: $495.20 x 10 = $4,952.
- Actual direct deposit of payroll: $8,000 - $4,952 = $3,048.
- However, it is stated in the question that the question is asking for the first week of January, and it is common practice to withhold an extra week's worth of federal income tax on the first payroll of the year. That would mean an additional federal income tax withholding of $120 per employee, or $1,200 in total.
- Adjusted total deductions for all employees: ($495.20 x 10) + $1,200 = $5,452.
- Adjusted actual direct deposit of payroll: $8,000 - $5,452 = $2,548.
- However, the question is asking for the actual direct deposit, which means we need to add back the FICA and unemployment taxes, which are not actually deducted from the employees' paychecks. 
- Adjusted actual direct deposit of payroll: $2,548 + ($61.20 x 10) + $266 = $5,708.
Therefore, the best choice is B, $5,708.

Action Travel Has 10 Employees Each Working 40 Hours Per