Social Security Annual Payroll Tax Formula

J

Jen

Hello-

I am in need of some help, which may be as simple as an IF function, but I
am currently in brain freeze mode because I am thinking about this one too
hard.

I am putting together a budget for a fictitious start-up company for class
and need to account for any social security taxes paid from an employer
perspective. The rate is 7.65%, however, I want this formula to take 7.65%
of UP TO 94,000. Anything over the 94,000 is no longer taxed. So an
employee that I have budgeted to make $120,000 for the year will only have
SS taxes paid up to $94,000 of that $120,000 amount ($94,000 x 7.65% =
$7,191).

How would I write this formula in excel? I have 750 employees and
approximately 25 make over the $94,000 limit.

Thanks in advance-
Jennifer
 
J

joeu2004

I am putting together a budget for a fictitious start-up company for class
and need to account for any social security taxes paid from an employer
perspective. The rate is 7.65%, however, I want this formula to take 7.65%
of UP TO 94,000. [....] How would I write this formula in excel?
Click to expand...

Well, if your facts were correct -- they are not, but perhaps those
are the facts that your instructor wants you to work with -- you could
write:

=round(7.65%*max(94000,A1), 2)

where A1 is the employee's cumulative wages subject to FICA tax. If
you want a formula that works for each pay period, you could write:

=if(A1 > 94000, 0, round(7.65%*A2, 2))

where A2 is the employee's periodic wages subject to FICA tax.

A couple of details that you may or may not want to take into account,
depending on the assignment....

1. At best, that is FICA tax from the __employee's__ perspective, not
the employer's. That is, it is the amount withheld from the
employee's wages. From the __employer's__ point of view, FICA is paid
at the rate of 15.3% -- applying the same over-simplification that you
are. Typically, this is accomplished by taking half from the
employee's wages and contributing half from the employer's cash.

2. Actually, FICA tax is composed of two taxes: Soc Sec and
Medicare. It is only Soc Sec that is limited. Medicare tax at 2.9%
(1.45% from the employee) is assessed on all wages subject to Medicare
tax. Soc Sec tax at 12.4% (6.2% from the employee) is assessed on the
first $94,200 (in 2006; or $97,500 in 2007) of each employee's wages
subject to Soc Sec tax.

Taking #2 into account, the total FICA tax is one of the following
(see the above choices), reverting to the incorrect Soc Sec limit that
you mentioned:

=round(1.45%*A1, 2) + round(6.2%*max(94000,A1), 2)

=round(1.45%*A2, 2) + if(A1 > 94000, 0, round(6.2%*A2, 2))
 
J

joeu2004

Errata....

=round(7.65%*max(94000,A1), 2)
[....]
=round(1.45%*A1, 2) + round(6.2%*max(94000,A1), 2)
Click to expand...

Arrgghh! Of course, that should MIN(...), not MAX(...).
 
J

joeu2004

1. At best, that is FICA tax from the __employee's__ perspective, not
the employer's. That is, it is the amount withheld from the
employee's wages. From the __employer's__ point of view, FICA is paid
at the rate of 15.3% -- applying the same over-simplification that you
are. Typically, this is accomplished by taking half from the
employee's wages and contributing half from the employer's cash.
Click to expand...

In email, Jennifer points out that my point above is a bit of a
nitpick. After all, isn't "half" of 15.3% simply 7.65%?
(Rhetorical.) Technically, not exactly, if only due to rounding the
employee's deduction to a penny. But I probably should not have
mentioned it all. It's a "hot button" for me recently because of an
issue I have been having with someone who wants to bend the IRS rules
by underwithholding the employee's FICA tax deduction. Much ado about
nothing. Mea culpa!
 
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