Mike works for Baltimore Corp. Fact’s related to Mike’s paycheck *

| June 4, 2016

Question
Mike works for Baltimore Corp. Fact’s related to Mike’s paycheck are listed below. He is paid $5,000 once per month on the
last day of the month. He has already been paid for January. You are computing February payroll.

Mike’s pay is subject to social security taxes at a 6.2% rate and Medicare at a 1.45% rate. He has not
exceeded the annual base for social security taxes. Assume the company will remit this tax and any
employer match on the 3rd business day after pay day.
Assume Mike’s income tax withholding to be equal to $15% for Federal and 5% for Maryland. Assume that
both of these withheld taxes will be remitted on the 3rd business day after pay day.
Baltimore Corp pays for workers’ compensation insurance at a 3.5% rate. None of this cost is paid by the
employee.
Baltimore Corp provides its employees with health care insurance, and pays 80% of the $600 per employee
monthly premium. The other 20% is paid by employees via payroll withholdings.
Mike participates in a tax-sheltered deferred savings plan (401k plan) and has 6% of his gross pay withheld
each month. Baltimore Corp provides a 100% matching contribution of the first 5% of worker pay. There is
no match after 5%. This is sent to the investment company on the 10th of the following month.
Baltimore Corp’s payroll is subject to federal (FUTA) tax of 6.2% of the first $7,000 of employee pay per
year. The payroll is also subject to Maryland unemploment tax (SUTA) of 4.0% of the first $8,500 of
employee pay per year. Both taxes are paid by the employer and the employee does not have these taxes
withheld.
Mike participates in the Charitable giving program to donate monney to Baltimore Habitat for Humanity each
month. $25 is withheld from his check and sent to the charity by Baltimore Corp on the 10th of the following
month.

(a)

Calculate Mikes net pay check in the space provided below.

(b)

Prepare journal entries for Mike’s pay and the related payroll expenses.

(c)

What is the total cost to Baltimore Corp for Mike’s services during February?

Amounts
(a)

Journal Entries

(b)

(c)

Debit

Credit

Expenses:

Total cost to employ Mike

$-

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