I tried to work the problem out, but for some reason the Cumulative earnings prior to current week are making me stumble and I am confused.



8. The following information is for employee Robert Ellis for the week ended March 15.



Total hours worked: 48

Rate: $15 per hour, with double time for all hours in excess of 40

Federal income tax withheld: $200

United Fund deduction: $50

Cumulative earnings prior to current week: $6,400

Tax rates:

Social security: 6% on maximum earnings of $100,000. Medicare tax:

1.5% on all earnings; on both employer and employee

State unemployment: 3.4% on maximum earnings of $7,000; on employer

Federal unemployment: 0.8% on maximum earnings of $7,000; on employer

(a)

Determine (1) total earnings, (2) total deductions, and (3) cash paid.

(b)

Determine each of the employer's payroll taxes related to the earnings of Robert Ellis for the week ended March 15.


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This is what I have, but I can't complete the deductions because of not knowing what to tax exactly. Please point out my mistakes.


I have 40 x 15 = $600
8 x 30 = $240
$840



so,
840 x .06 = 50.4
840 x .015 = 12.6

840-50.4-12.6 (should I deduct more?) =

where does united fund deductions and federal income tax withheld come off?

I thought it would be on the 6,400+840=7,240

7,000 x 3.4% = 238
7,000 x .8% = 6.72

7,240-238-6.72-200-50=6745.28

so,
840 x .06 = 50.4
840 x .015 = 12.6

This is correct, except it's 50.40 and 12.60. It's money.


840-50.4-12.6 (should I deduct more?) =

Yes, the federal tax and united fund deductions.


where does united fund deductions and federal income tax withheld come off?

The same place. There's four total deductions from the gross wages. The only difference is that you didn't have to calculate these two and you did have to calculate S.S. and medicare. But they're still all deductions from the same check.


I thought it would be on the 6,400+840=7,240

7,000 x 3.4% = 238
7,000 x .8% = 6.72

Nope. The 6400 in cumulative earnings means that's what the person has earned up through the prior payroll. They give you this amount so that you can figure out which portion of this payroll is subject to these taxes. It's nowhere near the S.S. limit so you don't need to worry about that. But as you can see, this payroll is going to make it go over the 7000 limit for the unemployment. A common mistake is to do exactly what you did: figure the tax on the entire 7000. But 6400 of it has already been paid and taxed. You aren't going to do unemployment for the entire 7000 this payroll. If 6400 has already been taxed, how much is left that will be taxable?


7,240-238-6.72-200-50=6745.28


This has no meaning. Simply because 6400 has already been taxed. And also because unemployment isn't a deduction. (Federal isn't an employee responsibility and in most state neither is the state. A few states also have a portion that is deductible from the employee's check.) This is something the employer is responsible for and is not deducted. So subtracting means nothing cause it's not coming from a check. (And the check isn't for 7240.)

The second portion of the question is asking for the employer's part of the tax. Their part is to match the S.S. and medicare. The dollar amounts will be exactly the same as what you've figured out. This amount is not only deducted from the employee's check, but the employer has to match this amount and pay the same amount in addition to the deduction. And the two unemployments are employer expenses.