Question

Example 4-12 GROSSING-UP. Cotter Company wants to award a $4,000 bonus to Donna D'Amico. In addition,...

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 – 0.22 (supplemental W/H rate) – 0.062 (OASDI) – 0.0145 (HI)
B. $4,000 = $5,685.86 grossed-up bonus
0.7035
C. Gross bonus amount $5,685.85*
Federal Income Tax withheld 1,250.89
OASDI tax withheld 352.52
HI tax withheld 82.44
Take-home bonus check $4,000.00

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

*Need to subtract $0.01 from $5,685.86 in order to arrive at $4,000.00 (due to rounding).

Problem: Mattola Company is giving each of its employees a holiday bonus of $350 on December 13, 20-- (a nonpayday). The company wants each employee's check to be $350. The supplemental tax percent is used.

Nobody has capped for OASDI prior to the bonus check.

a. What will be the gross amount of each bonus if each employee pays a state income tax of 2.8% (besides the other payroll taxes)? You may need to add one penny to the gross so that net bonus exactly equals $350. Round your calculations and final answers to the nearest cent.

$______________.

b. What would the net amount of each bonus check be if the company did not gross-up the bonus? Round your intermediary calculations to the nearest cent.

$_____________-.

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Homework Answers

Answer #1

a) Gross bonus = $350/(1 – 0.22 – 0.028 – 0.062 – 0.0145) = $350/0.6755 = $518.13

Gross bonus

518.14*

Federal income tax withheld ($518.13 x 0.22)

113.99

State income tax withheld ($518.13 x 0.028)

14.51

OASDI tax withheld ($518.13 x 0.062)

32.12

HI tax withheld ($518.13 x 0.0145)

7.51

Net bonus $

350.00

*Added $0.01 to arrive at $350 gross bonus.

Answer: $518

b)

Gross bonus

350.00

Federal income tax withheld ($350 x 0.22)

77.00

State income tax withheld ($350 x 0.028)

9.80

OASDI tax withheld ($350 x 0.062)

21.70

HI tax withheld ($350 x 0.0145)

5.08

Net bonus $

236.42

Answer: $236

I HOPE IT USEFUL TO YOU IF YOU HAVE ANY DOUBT PLZ COMMENT GIVE ME UP-THUMB. THANKS...

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