Prior to the last weekly payroll period of the calendar year, the cumulative earnings of employees A and B are $99,350 and $91,000 respectively. Their earnings for the last completed payroll period of the year are $850 each. The amount of earnings subject to social security tax at 6% is $100,000. 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?
A) $127.50
B) $115.50
C) $112.50
D) $0

Question

Quizplus · Accepted Answer

First, calculate the social security tax:
The amount of earnings subject to social security tax is $100,000, so the maximum tax for each employee is $6,000 (6% of $100,000).
Employee A's cumulative earnings are $99,350, so the amount of earnings subject to social security tax for this payroll period is $650 ($100,000 - $99,350). Therefore, Employee A's social security tax for this period is $39 ($650 x 6%).
Employee B's cumulative earnings are $91,000, which is under the limit for social security tax, so the amount of earnings subject to social security tax for this payroll period is $850. Therefore, Employee B's social security tax for this period is $51 ($850 x 6%).

Next, calculate the Medicare tax:
Both employees earned $850 each, so the total earnings subject to Medicare tax is $1,700 ($850 + $850). Therefore, the total Medicare tax for this payroll period is $25.50 ($1,700 x 1.5%).

Finally, add the social security tax and Medicare tax together to get the total FICA tax for this payroll period:
Employee A's social security tax = $39
Employee B's social security tax = $51
Total Medicare tax = $25.50
Total FICA tax = $115.50.

Therefore, the correct answer is B.

Prior to the Last Weekly Payroll Period of the Calendar