Question
Problem 5-4A (Algo)
Lex is the payroll accountant at All's Fair Gifts. The employees of All's Fair Gifts are paid semimonthly. Akila comes to Lex on April 8 and requests a pay advance of $1,000, which Akila will pay back in equal parts on the April 19 and May 17 paychecks. Akila is single, with one dependent under 17, is paid $65,200 per year, contributes 3 percent of gross pay to a 401(k), and has $144 per paycheck deducted for a Section 125 plan.
Required:
Compute the net pay on Akila's April 19 paycheck. The applicable state income tax rate is 5.25 percent. Use the wage-bracket method for manual payroll systems with Forms W-4 from 2020 or later in Appendix C to determine the federal income tax. Assume box 2 is not checked.
Note: Round your intermediate calculations and final answer to 2 decimal places.
Lex is the payroll accountant at All's Fair Gifts. The employees of All's Fair Gifts are paid semimonthly. Akila comes to Lex on April 8 and requests a pay advance of $1,000, which Akila will pay back in equal parts on the April 19 and May 17 paychecks. Akila is single, with one dependent under 17, is paid $65,200 per year, contributes 3 percent of gross pay to a 401(k), and has $144 per paycheck deducted for a Section 125 plan.
Required:
Compute the net pay on Akila's April 19 paycheck. The applicable state income tax rate is 5.25 percent. Use the wage-bracket method for manual payroll systems with Forms W-4 from 2020 or later in Appendix C to determine the federal income tax. Assume box 2 is not checked.
Note: Round your intermediate calculations and final answer to 2 decimal places.
Answers
GPT-4o mini
To compute Akila's net pay for the paycheck on April 19, we will follow these steps:
1. **Calculate Akila's Semimonthly Gross Pay**:
\[
\text{Annual Salary} = 65,200
\]
\[
\text{Semimonthly Gross Pay} = \frac{65,200}{24} = 2,717
\]
2. **Calculate Deductions**:
- **401(k) Contribution**: 3% of Gross Pay
\[
401(k) \text{ Deduction} = 0.03 \times 2,717 = 81.51
\]
- **Section 125 Plan Deduction**: $144 per paycheck
- **Total Deductions Before Tax**:
\[
\text{Total Deductions} = 81.51 + 144 = 225.51
\]
3. **Calculate Adjusted Gross Pay**:
\[
\text{Adjusted Gross Pay} = \text{Gross Pay} - \text{Total Deductions} = 2,717 - 225.51 = 2,491.49
\]
4. **Compute Federal Income Tax**:
Using the IRS wage bracket method and based on the information provided from Akila's Form W-4:
- Filing Status: Single
- Allowances: 1 dependent
- From the IRS Tax Tables, we would look up the appropriate values based on the adjusted gross pay.
For a single person with one dependent and semimonthly pay, here’s a simplified way to estimate taxes:
- The standard deduction for 2023 for a single taxpayer is $13,850 (monthly calculations may simplify the process even more, but usually, we would be looking at the effective tax rate for such calculations).
Given Akila’s adjusted gross income:
Applying the federal tax bracket:
(Using estimated values unless specified - typically, for a single filing, the actual rate could vary but let’s assume approximately 12% isn't unreasonable for this income level).
\[
\text{Federal Income Tax} \approx 12\% \text{ (approx)} \text{ of Adjusted Gross Pay}
\]
\[
\text{Federal Income Tax} = 0.12 \times 2,491.49 = 298.98
\]
5. **Calculate State Income Tax**:
\[
\text{State Income Tax} = 5.25\% \text{ of Adjusted Gross Pay}
\]
\[
\text{State Income Tax} = 0.0525 \times 2,491.49 = 130.83
\]
6. **Calculate Final Net Pay**:
Now we will subtract both taxes from the Adjusted Gross Pay:
\[
\text{Net Pay} = \text{Adjusted Gross Pay} - \text{Federal Tax} - \text{State Tax}
\]
\[
\text{Net Pay} = 2,491.49 - 298.98 - 130.83 = 2,061.68
\]
However, since Akila will also repay part of the loan amount, we have to subtract the first part of the advance taken:
\[
\text{Payback Amount} = \frac{1,000}{2} = 500
\]
Finally, the net pay calculation becomes:
\[
\text{Final Net Pay} = 2,061.68 - 500 = 1,561.68
\]
**Final Answer**: Akila's net pay for her April 19 paycheck is **$1,561.68**.
1. **Calculate Akila's Semimonthly Gross Pay**:
\[
\text{Annual Salary} = 65,200
\]
\[
\text{Semimonthly Gross Pay} = \frac{65,200}{24} = 2,717
\]
2. **Calculate Deductions**:
- **401(k) Contribution**: 3% of Gross Pay
\[
401(k) \text{ Deduction} = 0.03 \times 2,717 = 81.51
\]
- **Section 125 Plan Deduction**: $144 per paycheck
- **Total Deductions Before Tax**:
\[
\text{Total Deductions} = 81.51 + 144 = 225.51
\]
3. **Calculate Adjusted Gross Pay**:
\[
\text{Adjusted Gross Pay} = \text{Gross Pay} - \text{Total Deductions} = 2,717 - 225.51 = 2,491.49
\]
4. **Compute Federal Income Tax**:
Using the IRS wage bracket method and based on the information provided from Akila's Form W-4:
- Filing Status: Single
- Allowances: 1 dependent
- From the IRS Tax Tables, we would look up the appropriate values based on the adjusted gross pay.
For a single person with one dependent and semimonthly pay, here’s a simplified way to estimate taxes:
- The standard deduction for 2023 for a single taxpayer is $13,850 (monthly calculations may simplify the process even more, but usually, we would be looking at the effective tax rate for such calculations).
Given Akila’s adjusted gross income:
Applying the federal tax bracket:
(Using estimated values unless specified - typically, for a single filing, the actual rate could vary but let’s assume approximately 12% isn't unreasonable for this income level).
\[
\text{Federal Income Tax} \approx 12\% \text{ (approx)} \text{ of Adjusted Gross Pay}
\]
\[
\text{Federal Income Tax} = 0.12 \times 2,491.49 = 298.98
\]
5. **Calculate State Income Tax**:
\[
\text{State Income Tax} = 5.25\% \text{ of Adjusted Gross Pay}
\]
\[
\text{State Income Tax} = 0.0525 \times 2,491.49 = 130.83
\]
6. **Calculate Final Net Pay**:
Now we will subtract both taxes from the Adjusted Gross Pay:
\[
\text{Net Pay} = \text{Adjusted Gross Pay} - \text{Federal Tax} - \text{State Tax}
\]
\[
\text{Net Pay} = 2,491.49 - 298.98 - 130.83 = 2,061.68
\]
However, since Akila will also repay part of the loan amount, we have to subtract the first part of the advance taken:
\[
\text{Payback Amount} = \frac{1,000}{2} = 500
\]
Finally, the net pay calculation becomes:
\[
\text{Final Net Pay} = 2,061.68 - 500 = 1,561.68
\]
**Final Answer**: Akila's net pay for her April 19 paycheck is **$1,561.68**.