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Calculations of Pay
| Question | Answer |
|---|---|
| Mandatory flat rate must be used: | The mandatory flat rate (37%) must be used when paying supplemental wages to an employee whose year-to-date taxable supplemental wages exceed $1,000,000 |
| Calculate employer’s tax liability: | Add employee withheld taxes (income, social security, and Medicare) to the employer paid taxes (social security, Medicare, and FUTA). |
| 22%: | The percentage used for the optional flat rate withholding method. No other percentage is allowed. |
| Determining taxable wages: | Determine the employee’s taxable wages by subtracting the pre-tax deductions from gross wages |
| Employer social security rate is: | 6.2%. |
| Common paymaster requires: | That all wages for employees working for one or more related companies concurrently are combined, taxed, paid, and reported by the common paymaster as a single transaction for each employee. |
| What happens with a common paymaster? | In a common paymaster situation, an employee working concurrently for multiple related companies has a single wage base for FUTA, social security, and Additional Medicare taxes. |
| What is the gross-up formula? | When calculating an employee’s gross earnings, divide the desired net pay the employee is to receive (100% less the employee’s total percentage of all tax rates). |
| The standard procedure in a merger: | The predecessor will pay final wages and furnish Form W-2 for all wages paid. The successor will pay wages after the transaction and furnish Form W-2. |
| What is nexus? | Nexus is created by the location of a business or where services are performed. An employer with nexus in a state is subject to the tax requirements of that state. |
| Optional flat rate can be used: | 22% may be used for supplemental wages if the employee has had FIT withheld from regular wages in the current or preceding year, and the wages are identified separately from regular wages. For taxable supplemental wages up to $1,000,000. |
| The alternate procedure in a merger: | The predecessor will pay final wages and furnish the successor with all wages paid and taxes withheld. The successor will pay wages after the transaction and furnish Form W-2 for wages in the year. |
| What is constructive payment? | Constructive payment is when wages have been made available to the employee without substantial limitation or restriction. Constructive payment is when an amount becomes taxable. |
| The social security wage base is: | $168,600 in 2024 |
| What is the Medicare tax rate? | Both employers and employees pay the Medicare tax of 1.45% on all wages. Employees with wages in excess of $200,000 pay the Additional Medicare tax of 0.9%. |
| How often should imputing occur? | The IRS requires taxable noncash benefits to be included in an employee’s income (imputed) at least once a year by December 31. Employers should impute income as frequently as possible to reduce the impact on an employee’s pay. |
| What is the primary state for SIT withholding? | The general rule is to withhold for the employee’s work state. However, nexus, reciprocal agreements, and the employee’s residence may require withholding in the resident state. |
| Methods to calculate FITW include: | FITW must be calculated using one of five methods: Wage-Bracket or Percentage Method for regular wages, and Optional Flat Rate, Mandatory Flat Rate, or Aggregate Method for supplemental wages |
| FICA public sector exemption is: | Employees of public employers are only subject to social security tax when covered by a §218 agreement or not eligible for a public employee retirement plan meeting certain requirements. |
| Social security tax age limit: | The social security tax has no age limit. All employees are subject to the 6.2% social security tax up to the annual wage limit. |
| What is the Medicare tax wage base? | The Medicare tax does not have a wage base. |
| For FLSA, who is a tipped employee? | Under the FLSA, employees regularly receiving and reporting more than $30 of tips in a month are tipped employees. |
| Employee social security rate is: | 6.2% |
| Wages paid vs. wages earned: | Wages are reported as income in the year paid, not when wages are earned. |
Created by:
njaramillo
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