HELP PLEASE

Question

This month, payroll and tax computations for Rick's salary gave the following results:
Gross pay: $3,737
Federal Withholding Tax: $506.79
State Withholding Tax: $190.26
Social Security: $153.54
Medicare: $48.16
Federal Unemployment Tax: $24.37
State Unemployment Tax: $30.49
Use the appropriate parts of the information above to compute Rick's effective Federal Withholding Tax rate. (Use percent form with two decimal places in your answer.)

Answer 1

There is a lot of information here that you can ignore. The only relevant numbers are gross pay and federal tax withholding.

 

506.79 / 3,737 = .1356 or 13.56%

 

This is the federal income tax withholding rate. However, social security and medicare are also withholdings. If the problem said Federal Withholding Income Tax rate, the above solution is correct. But by omitting the word "Income" it is possible that what is requested is the total withholding rate. In that case the solution is

 

(506.70 + 153.54 + 48.16) / 3,737 = .1896 0r 18.95%

 

Because social security withholdings apply only to employees below a certain income limit, i.e. lower-paid workers, to total tax burden on them is higher that that of many wealthier taxpayers.