Question

Your boss approaches you in mid-December and requests that you pay certain employees their gross pay amount as if there were no deductions as their Christmas bonuses. None of the employees have reached the Social Security wage base for the year. What is the gross-up amount for each of the following employees?
a) The tax rate on bonuses is 28%.
b) The Social Security (6.2%) and Medicare taxes (1.45%) must be added to this rate.
c) Yves St. John, regular gross pay per period $1425 Kim Johnson, regular gross pay per period $2,400
d) Michael Hale, regular gross pay per period $2,240

Answer 1

Answer:

Yves St Jones would be payed $2,214.45

Kim Johnson would be payed $3,729.60

Michael Hale would be payed $3,480.96

Explanation:

Tax rate = Bonus + Social Security + Medicare Tax  

= 28.00% + 6.20% +  1.45%  

Total Tax rate = 35.65%

Net pay ratio = 100% - Tax rate

= 100% - (28 + 6.2 + 1.45)% = 64.35%

Gross pay = Net pay ÷ Net pay ratio

Employee           Regular pay per period    Net Pay ratio Gross pay

Yves St Jones       $1,425                        64.35%        $2,214.45

Kim Johnson               $2,400                        64.35%        $3,729.60

Michael Hale               $2,240                        64.35%        $3,480.96