What is the amount of cash that Hunter able to save in 2018 because he chose to take advantage of payroll deductions made available to him by his employer.  Hint: Payroll deductions related to 401(k) contributions only reduce the amount of an employee's taxable wages reported on Form W-2, Box 1 (i.e. employees still owe FICA taxes on the portion of their payroll deductions related to 401(k) contributions). In contrast, payroll deductions related to flexible spending accounts and health insurance premiums reduce the amount of an employee's taxable wages reported on Form W-2, Boxes 1, 3 and 5. Hunters base salary Base salary for 2018 was $101,350 and

$23,668 income taxes were withheld from his paychecks

given the information provided below.

Description

2018 Amount

Non-cash incentive award - all-expenses-paid cruise vacation $4,025

Tax gross-up for the non-cash incentive award $1,375

Payroll deduction - Employee 401(k) contributions $6,081

Payroll deduction - Employee FSA contributions $2,400

Payroll deduction - Employee portion of insurance premiums $1,440

Hunter's marginal tax rate of 24% (income tax rate only) and 31.65% (income tax rate + Social Security tax rate + Medicare tax rate) should be used as applicable for this analysis and your answer should be shown as a positive amount and rounded to ZERO decimal places.

 

Answer:

Hunter's savings from his payroll deduction for 2018 amounts to $6,556.36.

Step-by-step explanation

CALCULATION DETAILS:

• It is assumed that Hunter's GI (gross income) is inclusive of taxes withheld and savings are computed as per data provided.
• The Savings that Hunter made from opting for Payroll deduction will consist of FSA (flexible saving A/c) amount, Insurance plan amount i.e. its premium, and employer contribution for 401(k) plan.
• These above-stated amounts will be regarded as cash Hunter saved because these amounts are deducted from his taxable income which forms the amount analysed for income taxes required to be withheld.
• The insurance premium amount is not eligible as the $1,440 amount does not exceed 7.5% of the Hunter's GI amount (i.e. $7,601.25). This medical cost deduction is only available when the parameter of excess of 7.5% of GI is fulfilled.
• Since the money utilized to fund Hunter's FSA is pre-tax—taken from his pay check before taxes are deducted. The taxpayer saves whatever percentage he/she would have paid on it to the federal tax authority.

The following snip shows the detailed computation of Hunter's savings:

References:

401 (k) contribution link-

https://www.quantumbank.com/KJECalc/RetirePayrollSavings401k.html 

FSA contribution link-

https://www.investopedia.com/ask/answers/112315/are-flexible-spending-account-fsa-contributions-tax-deductible.asp 

FICA tax rate-

https://smartasset.com/taxes/all-about-the-fica-tax 

Insurance premium link-

https://www.investopedia.com/are-health-insurance-premiums-tax-deductible-4773286#:~:text=Yes%2C%20it%20is%20worth%20claiming,of%20your%20adjusted%20gross%20income

PFA