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So as the employer, are you withholding 7.65% of wages from being paid to the employee? And is the federal income tax withheld not a part of wages?
Lime Co.’s payroll for the month ending January 31, 20X1, is summarized as follows:
Total wages $10,000
Federal income tax withheld 1,200
All wages paid were subject to the Federal Insurance Contributions Act (FICA). FICA tax rates were 7.65% each for employee and employer. Lime remits payroll taxes on the 15th of the following month. In its financial statements for the month ending January 31, 20X1, what amounts should Lime report as total payroll tax liability and as payroll tax expense?
A. Liability: $1,200; Expense: $1,530
B. Liability: $1,965; Expense: $1,530
C. Liability: $1,965; Expense: $765
Correct D. Liability: $2,730; Expense: $765
Federal income tax withheld $1,200
Employee FICA (7.65% x $10,000) 765
Employer FICA (7.65% x $10,000) 765
Total $2,730
Payroll tax expense: Employer FICA (7.65% × $10,000) = $765
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