Question

Note: In this chapter and in all succeeding work throughout the course, unless instructed otherwise, calculate hourly rates and overtime rates as follows:

1.	Carry the hourly rate and the overtime rate to 3 decimal places and then round off to 2 decimal places (round the hourly rate to 2 decimal places before multiplying by one and one-half to determine the overtime rate).
2.	If the third decimal place is 5 or more, round to the next higher cent.
3.	If the third decimal place is less than 5, simply drop the third decimal place.
	Examples:	Monthly rate $1,827 Weekly rate ($1,827 × 12)/52 = $421.615 rounded to $421.62 Hourly rate $421.62/40 = $10.540 rounded to $10.54 O.T. rate $10.54 × 1.5 = $15.81

Also, use the minimum hourly wage of $7.25 in solving these problems and all that follow.

Example 4-12

GROSSING-UP. Cotter Company wants to award a $4,000 bonus to Donna D'Amico. In addition, it wants the net bonus payment to equal $4,000. Assuming D'Amico is still under the OASDI/FICA limit, the calculation would be:

A.	$4,000
	1–0.25 (Supplemental W/H rate)–0.062 (OASDI)–0.0145 (HI)

B.	$4,000	= $5,939.12 grossed-up bonus
	0.6735

C.	Gross bonus amount	$5,939.13*
	Federal income tax withheld	1,484.78
	OASDI tax withheld	368.23
	HI tax withheld	86.12
	Take-home bonus check	4,000.00

If state or local taxes apply, they must also be included in the formula.

*Need to add $0.01 to $5,939.12 in order to arrive at $4,000.00 (due to rounding).

Damerly Company (a Utah employer) wants to give a holiday bonus check of $175 to each employee. Since it wants the check amount to be $175, it will need to gross-up the amount of the bonus. Calculate the withholding taxes and the gross amount of the bonus to be made to John Rolen if his cumulative earnings for the year are $46,910. Besides being subject to social security taxes and federal income tax (supplemental rate), a 5% Utah income tax must be withheld on supplemental payments.

Enter deductions beginning with a minus sign (-).

Gross bonus amount	$_______
Federal income tax withheld	$_________
OASDI tax withheld	$__________
HI tax withheld	$_________
Utah income tax withheld	$_________
Take-home bonus check	$__________

Answer 1

Gross bonus amount = 175/ 1 – 0.25 (supplemental federal rate) – 0.062 (OASDI) – 0.0145 (HI) – 0.05 (Utah tax)
Gross bonus amount = 175/(1-0.3765)= $280.67
Gross bonus amount	280.67
Federal income tax withheld	-70.17	=280.67*25%
OASDI tax withheld	-17.40	=280.67*6.2%
HI tax withheld	-4.07	=280.67*1.45%
Utah income tax withheld	-14.03	=280.67*5%
Take-home bonus check	175.00