Question

Ann Sacks has an annual salary of $30,000. Her employer established a Section 401(k) plan, providing that she may invest up to 12 percent of her salary in the plan. The employer will match the first five percent. This year Ann took an eight percent salary reduction.
(a.) What is Ann's gross income from compensation?
(b.) What amount is subject to social security tax?
(c.) What is the employer's compensation deduction?
(d.) What is Ann's total increase in her Section 401(k) account?

Answer 1

a) Anna's gross income does not include her contribution or employer's contribution to the plan the Anna's gross income will be $ 30,000 less 8% salary reduction so it is $ 27,600

b) Anna's total salary of $ 30,000 is subjected to social security tax

c) Anna's employer contribution is equal to 5% of Anna's salary so it is $ 1,500 and in addition the social security tax paid on $ 30,000

d) so the total increase in her Sec 401 (k) is equal to 5% + 8% = 13% of her salary $ 30,000 = 3,900