to the Editor
on Tax Rates Article
the article “Dividend Tax Rate Cuts Benefit Closely
Held Corporations,” by Phillip J. Korb, John N. Sigler,
and Thomas E. Vermeer (October, page 40), the Exhibit, Situation
A, shows payroll taxes on bonus ($150,000 x 16%) of $24,000.
For 2004, only the first $87,900 of wages are subject to
Social Security tax. The Exhibit indicates there is only
one owner/employee. How did the Exhibit reach this tax savings
Reid, Sr., CPA (Retired)
16% rate was intended as an average of all payroll taxes,
including other payroll related items. However, in light
of the 12.4% rate applying only up to $87,900, the average
rate of 16% is too high.
you adjust the payroll taxes to account for the 12.4% rate
applying only up to $87,900, the payroll taxes for situation
A in our Exhibit would be reduced by $7,700: [(150,000 –
87,900) x 12.4%], which would reduce the overall tax savings
to approximately $3,300 ($11,000 – $7,700).
you for pointing this out to us, and for your interest in
In the November
issue, Ganesh M. Pandit, one of the authors of “Comprehensive
Income: Reporting Preferences of Public Companies”
(page 40) was incorrectly noted as being currently affiliated
with Clark Atlanta University. Pandit has recently become
a faculty member at Adelphi University, Garden City, N.Y.
The editors apologize for the error.