Prior to the last weekly payroll period of the calendar year, the cumulative earnings of employees A and B are $106,150 and $91,000, respectively.Their earnings for the last completed payroll period of the year are $850 each.Social security tax rate is 6% on maximum of $106,800.All earnings are subject to Medicare tax of 1.5%.Assuming that the payroll will be paid on December 29, what will be the employer's total FICA tax for this payroll period on the two salary amounts of $850 each?

Question

Quizplus · Accepted Answer

- Employee A has earned $106,150 prior to the last payroll period and earned an additional $850 during the current payroll period, bringing the total earnings to $107,000.
- Employee B has earned $91,000 prior to the last payroll period and earned an additional $850 during the current payroll period, bringing the total earnings to $91,850.
- The Social Security tax rate is 6% on a maximum of $106,800. Therefore, both employees have reached the maximum taxable earnings for Social Security.
- The Medicare tax rate is 1.5% on all earnings.
- Employer FICA tax is equal to the combined Social Security and Medicare taxes.
- For Employee A, Social Security tax is 6% of $106,800 ($6,408) and Medicare tax is 1.5% of $107,000 ($1,605), totaling $7,013. For Employee B, Social Security tax is 6% of $91,850 ($5,511) and Medicare tax is 1.5% of $91,850 ($1,378), totaling $6,889.
- Therefore, the employer's total FICA tax for this payroll period on the two salary amounts of $850 each is $7,013 + $6,889 = $13,902, which is divided by 2 (since there are two employees) to get $6,951. This amount is then divided by 24 (the number of payroll periods in a year) to get $289.63. Finally, since the question is asking for the FICA tax on just this payroll period, we subtract the FICA taxes paid on previous payrolls. Employee A has had FICA tax of $7,013 withheld in previous payroll periods and Employee B has had FICA tax of $6,889 withheld in previous payroll periods, making the total FICA taxes paid on previous payrolls $13,902. So the FICA tax due for this payroll period is $289.63 - $13,902 = -$13,612.37. However, payroll taxes cannot be negative, so the employer's total FICA tax for this payroll period is $0 plus any state or local payroll taxes that may apply. 
- The only answer option closer to this result is B.

Prior to the Last Weekly Payroll Period of the Calendar