Helen Strand’s regular hourly wage rate is $14, and she receives an hourly rate of $21 for work in excess of 40 hours. During a January pay period, Helen works 47 hours. Helen’s federal income tax withholding is $86, and she has no voluntary deductions.
Compute Helen Strand’s gross earnings and net pay for the pay period. Assume that the FICA tax rate is 7.65%. (Round answers to 2 decimal places, e.g. 15.25.)
The Correct Answer and Explanation is :
To calculate Helen Strand’s gross earnings and net pay for the pay period, we’ll break it down into steps, starting with her regular and overtime pay, followed by tax withholdings.
Step 1: Calculate Gross Earnings
- Regular Hours: Helen works 40 hours at her regular hourly wage rate of $14.
[
\text{Regular Pay} = \text{Regular Hours} \times \text{Regular Rate} = 40 \text{ hours} \times 14 \text{ dollars/hour} = 560 \text{ dollars}
] - Overtime Hours: Helen works 7 hours of overtime (47 total hours – 40 regular hours). The overtime rate is 1.5 times the regular rate.
[
\text{Overtime Rate} = 1.5 \times \text{Regular Rate} = 1.5 \times 14 \text{ dollars/hour} = 21 \text{ dollars/hour}
]
[
\text{Overtime Pay} = \text{Overtime Hours} \times \text{Overtime Rate} = 7 \text{ hours} \times 21 \text{ dollars/hour} = 147 \text{ dollars}
] - Total Gross Earnings: Add regular pay and overtime pay.
[
\text{Gross Earnings} = \text{Regular Pay} + \text{Overtime Pay} = 560 \text{ dollars} + 147 \text{ dollars} = 707 \text{ dollars}
]
Step 2: Calculate Net Pay
- FICA Tax: Calculate the FICA tax, which is 7.65% of gross earnings.
[
\text{FICA Tax} = 0.0765 \times \text{Gross Earnings} = 0.0765 \times 707 \text{ dollars} \approx 54.25 \text{ dollars}
] - Total Tax Withholding: Add the federal income tax withholding to the FICA tax.
[
\text{Total Tax Withholding} = \text{Federal Income Tax} + \text{FICA Tax} = 86 \text{ dollars} + 54.25 \text{ dollars} = 140.25 \text{ dollars}
] - Net Pay: Subtract the total tax withholding from the gross earnings.
[
\text{Net Pay} = \text{Gross Earnings} – \text{Total Tax Withholding} = 707 \text{ dollars} – 140.25 \text{ dollars} \approx 566.75 \text{ dollars}
]
Summary
- Gross Earnings: $707.00
- Net Pay: $566.75
Explanation
Calculating Helen’s gross earnings and net pay involves breaking down her work hours into regular and overtime segments. The regular hourly wage is multiplied by the hours worked (up to 40 hours) to determine her base pay. Any hours beyond this are considered overtime and are calculated at a higher rate, reflecting the extra compensation for additional effort.
Next, we compute her total tax withholdings, which consist of federal income tax and FICA tax. The FICA tax, which funds Social Security and Medicare, is a standard deduction calculated as a percentage of gross earnings. After determining the total deductions, we subtract them from Helen’s gross earnings to arrive at her net pay. This calculation is crucial as it provides a clear picture of Helen’s take-home earnings after all mandatory deductions.