Carl Jamison, an employee for the Scharman School, belongs to a tax-deferred retirement plan to which he contributes 3 percent of his pay which is matched by the school. His biweekly pay is $2,500. Because of the deferral (3% × $2,500 = $75), $2,425 is subject to federal income tax withholding.
George Clausen (age 48) is employed by Kline Company and is paid a salary of $42,484. He has just decided to join the company’s Simple Retirement Account (IRA form) and has a few questions. Answer the following for Clausen: Round your answer to the nearest cent.
a. What is the maximum that he can contribute into this retirement fund?
b. What would be the company’s contribution?
Note: For items c. & d. below, round interim amounts to two decimal places. Use these values in subsequent computations then round final answer to two decimal places.
c. What would be his weekly take-home pay if he contributes the maximum allowed retirement contribution (married, 2 allowances, wage-bracket method, and a 2.3% state income tax on total wages)?
Click here to access the Wage-Bracket Method Tables.
d. What would be his weekly take-home pay without the retirement contribution deduction?
a & b. See SIMPLE contribution limits.
c. Calculate take-home pay. Please note to consider the amount of earnings taxable for FIT when there is a retirement contribution.
d. Calculate take-home pay without the retirement contribution. Compare the FIT on parts c and d, then compare the take-home pay.