Question

Ehrlich Co. began business on January 2, 2013. Salaries were paid to employees on the last day of each month, and social security tax, Medicare tax, and federal income tax were withheld in the required amounts. An employee who is hired in the middle of the month receives half the monthly salary for that month. All required payroll tax reports were filed, and the correct amount of payroll taxes was remitted by the company for the calendar year. Early in 2014, before the Wage and Tax Statements (Form W-2) could be prepared for distribution to employees and for filing with the Social Security Administration, the employees’ earnings records were inadvertently destroyed.

None of the employees resigned or were discharged during the year, and there were no changes in salary rates. The social security tax was withheld at the rate of 6.0% and Medicare tax at the rate of 1.5%. Data on dates of employment, salary rates, and employees’ income taxes withheld, which are summarized as follows, were obtained from personnel records and payroll records:

Employee
Date First
Employed
Monthly
Salary
Monthly
Income Tax
Withheld
Arnett Nov. 16 $   5,500 $  1,008
Cruz Jan. 2 4,800 833
Edwards Oct. 1 8,000 1,659
Harvin Dec. 1 6,000 1,133
Nicks Feb. 1 10,000 2,219
Shiancoe Mar. 1 11,600 2,667
Ward Nov. 16 5,220 938

Instructions

  1. Calculate the amounts to be reported on each employee’s Wage and Tax Statement (Form W-2) for 2013, arranging the data in the following form:

GrossFederal IncomeSocial SecurityMedicareEmployeeEarningsTax WithheldTax WithheldTax Withheld\begin{array}{lcccc} \textbf{}&\textbf{Gross}\hspace{10pt}&\textbf{Federal Income}\hspace{10pt}&\textbf{Social Security}\hspace{10pt}&\textbf{Medicare}\hspace{10pt}\\ \textbf{Employee}\hspace{10pt}&\textbf{Earnings}\hspace{10pt}&\textbf{Tax Withheld}\hspace{10pt}&\textbf{Tax Withheld}\hspace{10pt}&\textbf{Tax Withheld}\hspace{10pt}\\\hline \end{array}

  1. Calculate the following employer payroll taxes for the year: (a) social security; (b) Medicare; (c) state unemployment compensation at 5.4% on the first $10,000 of each employee’s earnings; (d) federal unemployment compensation at 0.8% on the first$10,000 of each employee’s earnings; (e) total.

Solution

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In this problem, we are asked to calculate the payroll taxes.

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