During the first week of January, an employee works 45 hours. For this company, workers earn 150% of their regular rate for hours in excess of 40 per week. Her pay rate is $20 per hour, and her wages are subject to no deductions other than FICA Social Security, FICA Medicare, and federal income taxes. The tax rate for Social Security is 6.2% of the first $128,400 earned each calendar year and the FICA tax rate for Medicare is 1.45% of all earnings. The current FUTA tax rate is 0.6%, and the SUTA tax rate is 5.4%. Both unemployment taxes are applied to the first $7,000 of an employee’s pay. The employee has $92 in federal income taxes withheld. What is the amount of this employee’s gross pay for the first week of January?

$950

Explanation:

Gross pay refers to the total income of an employee before taxes and deductions are removed.

The employee gross pay for the first week of January is calculated as follows:

Regular income = $20 × 40 hours = 800

Overtime income = ($20 × 150%) × (45 - 40 hours)

                             = $30 × 5 hours = $150

Gross pay = $800 + $150 = $950

NOTE

The following is not stated in the question but just meant to teach you how to calculate the net pay from the question in case you are later asked to calculate it.

Net pay refers to the total income of an employee after taxes and deductions are removed. It can be calculated as follows:

FICA Social Security = 6.2% × $950 = $58.90

Note that 6.2% of the remaining amount of $127,450 (i.e. $128,400 - $959 = $127,450) will still be deducted in the subsequent employee's income to account for the total FICA Social Security deductible.

FICA Medicare = 1.45% × $950 = $13.78

Federal income tax withheld = $92

Total deduction = $58.90 + $13.78 + $92 = $164.68

Note: As stated in the question, the employee's wages are subject to no deductions other than FICA Social Security, FICA Medicare, and federal income taxes. This implies that her wages are not subject to FUTA and the SUTA tax. That is why they are not included in the calculation of the total deduction.

Net Pay = Gross pay - total deduction = $950 - $164.68 = $785.32.

Gross Wages = $950

Explanation:

The question is to determine the employee's gross pay for the first week of January as follows:

Description                                                        Amount

Regular wages (Regular hours 40 x $20)       $800

Overtime wages                                                $150

(Total hours - regular hours) x rate per hour

x pay rate

( 45-40) x $20 x 150%

Gross Wages                                                     $950

However, not that if you are to calculate the net wages, social security which is Gross x 6.2%, Medicare which is Gross x 1.45% and Federal Income tax which is $92 withheld will be subtracted from the gross pay or wages.

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