Mattola Company is giving each of its employees a holiday bonus of $125 on December 16 (a non payday). The company wants each employee's check to be $125. The supplemental tax percent is used. Round your calculations and answers to the nearest cent. a. What will be the gross amount of each bonus if each employee pays a state income tax of 2.8% (besides the other payroll taxes)?
b. What would the net amount of each bonus check be if the company did not gross-up the bonus?

a. $193.65

b. $80.69

Explanation:

The computation is shown below:

a) The gross amount of each bonud is

= Holiday bonus ÷ (1 - supplemental tax rate - OSADI tax rate - HI rate - state tax rate)

= $125 ÷ (1 - 0.25 - 0.062 - 0.0145 - 0.028)

= $125 ÷ 0.6455

= $193.65

b) Now the Net amount of each bonus check is

= Holiday bonus - (Holiday bonus × supplemental tax rate - Holiday bonus × OSADI tax rate - Holiday bonus ×  HI rate - Holiday bonus × state tax rate)

= $125 - ($125 × 0.25) - ($125 × 0.062) - ($125 × 0.0145) - ($125 × 0.028)

= $125 - $31.25 - $7.75 - $1.8125 - $3.5

= $80.69

Refer to the different tax table rate