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24 April, 15:47

Calculation of Social Security Tax and Marginal, Average and Effective Tax Rates on Social Security Taxes (LO. 1) Rory earns $70,000 per year as a college professor. Latesia is a marketing executive with a salary of $140,000. With respect to the Social Security tax (OASDI: 6.2%; MHI: 1.45%) calculate the following:

(Hint: OASDI 6.2% tax is only on max of $128,400 for the year.)

When required, round the total taxes to two decimal places.

a.

Rory's total FICA taxes: $

Latesia's total FICA taxes: $

Rounding instructions for parts (b), (c), and (d) : When required, round the tax rates to two decimal places.

b.

Rory's marginal tax rate: %

Latesia's marginal tax rate: %

c.

Rory's average tax rate: %

Latesia's average tax rate: %

d.

Rory's effective tax rate: %

Latesia's effective tax rate: %

+2
Answers (1)
  1. 24 April, 15:53
    0
    Rory wages tax: $ 5,355.00

    Latesia wages tax $ 9,990.80

    marginal tax-rate Rory: 7.65%

    while Latesia: 1.45%

    Rory average tax rate 7.65‬%

    Latesia Average tax-rate 7.14%

    Explanation:

    Rory wages tax:

    70,000 x (0.062 + 0.0145) = $5,355

    Latesia wages tax

    128,400 x 0.062 + 140,000 x 0.0145 =

    7,960.8 + 2,030 = 9,990.8

    marginal tax-rate Rory will be taxes in full for his next dollar of income: 7.45%

    while Latesia already capped OASDI therefore it will be taxes only for MHI: 1.45%

    effectiver/average tax rate:

    5,355 / 70,000 = 0,0765‬

    9,990.8 / 140,000 = 0,0713628
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