Berkley's gross pay for this month is $8,750. His gross pay year-to-date, prior to this month totaled $102,500. Berkley's rate for federal income tax is 20%. His voluntary deductions total $950. What is the amount of Berkley's net pay? (Assume an OASDI rate of 4.2%, applicable on the first $110,100 earnings, and a Medicare rate of 1.45%, applicable on all earnings.)

Question

Quizplus · Accepted Answer

First, we need to calculate Berkley's gross pay year-to-date (YTD) including this month's gross pay, which is:

$102,500 + $8,750 = $111,250

Next, we can calculate Berkley's pre-tax deductions by adding his voluntary deductions to his federal income tax. His federal income tax is:

$8,750 x 20% = $1,750

So his pre-tax deductions are:

$1,750 + $950 = $2,700

Now, we can calculate Berkley's taxable income by subtracting his pre-tax deductions from his gross pay:

$8,750 - $2,700 = $6,050

We can apply the OASDI and Medicare rates to Berkley's taxable income to calculate his payroll taxes. The OASDI rate is 4.2% on the first $110,100 of earnings, so the OASDI tax is:

$6,050 x 4.2% = $254.10

The Medicare rate is 1.45% on all earnings, so the Medicare tax is:

$6,050 x 1.45% = $87.93

We can subtract the payroll taxes from Berkley's taxable income to get his net pay:

$6,050 - $254.10 - $87.93 = $5,608.97

However, this is only his net pay for this month. To get his YTD net pay, we need to subtract his YTD payroll taxes and YTD pre-tax deductions from his YTD gross pay:

YTD gross pay = $111,250
YTD pre-tax deductions = $2,700
YTD payroll taxes = $4,598.22  <-- calculated below

To calculate YTD payroll taxes, we need to apply the OASDI and Medicare rates to Berkley's YTD taxable income. His YTD taxable income is:

$111,250 - $2,700 = $108,550

The OASDI tax is:

$108,550 x 4.2% = $4,561.10

The Medicare tax is:

$108,550 x 1.45% = $1,577.12

So YTD payroll taxes are:

$4,561.10 + $1,577.12 = $4,598.22

Now we can subtract YTD pre-tax deductions and YTD payroll taxes from YTD gross pay to get YTD net pay:

$111,250 - $2,700 - $4,598.22 = $103,951.78

Therefore, Berkley's net pay for this month is:

$5,608.97

And his YTD net pay is:

$103,951.78

The best choice is (D) $5,603.92, which is closest to our calculated net pay for this month ($5,608.97).

Berkley's Gross Pay for This Month Is $8,750