Mattola Company is giving each of its employees a holiday bonus of $500 on Decem
ID: 2392525 • Letter: M
Question
Mattola Company is giving each of its employees a holiday bonus of $500 on December 14 (a non payday). The company wants each employee's check to be $500. 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 $500.
$
b. What would the net amount of each bonus check be if the company did not gross-up the bonus?
$
Explanation / Answer
Answer
a ) gross amount of each bonus
state income tax = 2.8 %
FICA social security tax = 6.20 %
FICA medicare tax = 1.45 %
gross amount of each bonus = 500 / ( 100 % - 25 % - 6.20 % - 1.45 % - 2.8 % )
= 500 / 64.55 %
= 774.59
b )
net amount of each bonus
= 500 * ( 100 % - 25 % - 6.20 % - 1.45 % - 2.80 % )
= 500 * 64.55 %
= 322.75