Example 4-12GROSSING-UP. Cotter Company wants to award a$4,000 bonus to Donna D'Amico. In addition,...Example...

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Accounting

Example 4-12
GROSSING-UP. Cotter Company wants to award a$4,000 bonus to Donna D'Amico. In addition, it wants the net bonuspayment to equal $4,000. Assuming D'Amico is still under theOASDI/FICA limit, the calculation would be:
A. $4,000
1 – 0.22 (supplemental W/H rate) – 0.062 (OASDI) – 0.0145(HI)
B. $4,000 = $5,685.86 grossed-up bonus
0.7035
C. Gross bonus amount $5,685.85*
Federal Income Tax withheld 1,250.89
OASDI tax withheld 352.52
HI tax withheld 82.44
Take-home bonus check $4,000.00
If state or local taxes apply, they must also be included in theformula.
*Need to subtract $0.01 from $5,685.86 in order to arrive at$4,000.00 (due to rounding).
Mattola Company is giving each of its employees a holiday bonusof $900 on December 13, 20-- (a nonpayday). The company wants eachemployee's check to be $900. The supplemental tax percent isused.
Nobody has capped for OASDI prior to the bonus check.
a. What will be the gross amount of each bonusif each employee pays a state income tax of 2.8% (besides the otherpayroll taxes)? You may need to add one penny to the gross so thatnet bonus exactly equals $900. Round your calculations andfinal answers to the nearest cent.

$
b. What would the net amount of each bonuscheck be if the company did not gross-up the bonus? Roundyour intermediary calculations to the nearest cent.

$

Answer & Explanation Solved by verified expert

3.8 Ratings (625 Votes)

a Divide desired net pay by 1representing 100 minus all tax ratesusing decimals that will be deducted from gross pay this will give the required gross pay needed give desired net pay Take the resulting gross pay and multiply by the respective tax See Answer

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In: AccountingExample 4-12GROSSING-UP. Cotter Company wants to award a$4,000 bonus to Donna D'Amico. In addition,...Example 4-12GROSSING-UP. Cotter Company wants to award a$4,000 bonus to Donna D'Amico. In addition, it wants the net bonuspayment to equal $4,000. Assuming D'Amico is still under theOASDI/FICA limit, the calculation would be:A.$4,0001 – 0.22 (supplemental W/H rate) – 0.062 (OASDI) – 0.0145(HI)B.$4,000= $5,685.86 grossed-up bonus0.7035C.Gross bonus amount$5,685.85*Federal Income Tax withheld1,250.89OASDI tax withheld352.52HI tax withheld82.44Take-home bonus check$4,000.00If state or local taxes apply, they must also be included in theformula.*Need to subtract $0.01 from $5,685.86 in order to arrive at$4,000.00 (due to rounding).Mattola Company is giving each of its employees a holiday bonusof $900 on December 13, 20-- (a nonpayday). The company wants eachemployee's check to be $900. The supplemental tax percent isused.Nobody has capped for OASDI prior to the bonus check.a. What will be the gross amount of each bonusif each employee pays a state income tax of 2.8% (besides the otherpayroll taxes)? You may need to add one penny to the gross so thatnet bonus exactly equals $900. Round your calculations andfinal answers to the nearest cent.$b. What would the net amount of each bonuscheck be if the company did not gross-up the bonus? Roundyour intermediary calculations to the nearest cent.$

A.	$4,000
	1 – 0.22 (supplemental W/H rate) – 0.062 (OASDI) – 0.0145(HI)

C.	Gross bonus amount	$5,685.85*
	Federal Income Tax withheld	1,250.89
	OASDI tax withheld	352.52
	HI tax withheld	82.44
	Take-home bonus check	$4,000.00