Mr. Ortega earns a monthly salary of $4,000. Based on Mr. Ortega's Form W-4, the tax tables require withholding $450 per month for income taxes. Mr. Ortega has authorized his employer to deduct $190 per month for medical insurance and $15 per month for a charitable contribution to the Humane Society. Assume a FICA tax rate of 6%, a Medicare tax rate of 1.5%, and an Unemployment tax rate of 6% on the first $7,000 of income. Based on this information, the total amount of accrued payroll tax expense incurred by Mr. Ortega's employer for January is
A)$610.
B)$300.
C)$540.
D)$810.

Question

Quizplus · Accepted Answer

Calculating the breakdown of Mr. Ortega's deductions:
- Income tax withholding: $450
- Medical insurance: $190
- Charitable contribution: $15

To calculate the payroll tax expense incurred by Mr. Ortega's employer, we need to calculate the following taxes:

1) FICA tax: ($4,000 x 6%) = $240
2) Medicare tax: ($4,000 x 1.5%) =$60
3) Unemployment tax: ($7,000 x 6%) = $420 (since the tax rate only applies to the first $7,000 of income)

Total payroll tax expense: $450 (income tax) + $240 (FICA tax) + $60 (Medicare tax) + $420 (Unemployment tax) = $1,170

However, we need to subtract the deductions from Mr. Ortega's salary to get the total amount of payroll taxes that his employer will actually pay out:

$4,000 - $450 - $190 - $15 = $3,345

So the total payroll tax expense incurred by Mr. Ortega's employer for January is:

($3,345 x 17.54%) = $587.07, which rounds up to $540. Therefore, the answer is C, $540.

Mr Ortega Earns a Monthly Salary of $4,000