An assignment of Tax Planning

On
Tax System in United States of America
Submitted to
Prof. Darshana Khakharia
By
Darshan Lodhiya - 1523
Janvi Mehta 1527
Hemal Patel - 1542
Ranjeet Silu - 15

GLS Institute of Computer Technology (GLSICT- MBA)

U.S. Taxation
The U.S. tax system is set up on both a federal and state level. There are several types of taxes:
income, sales, capital gains, etc. Federal and state taxes are completely separate and each has its
own authority to charge taxes. The federal government doesn't have the right to interfere with
state taxation. Each state has its own tax system that is separate from the other states. Within the
state there may be several jurisdictions that also charge taxes. For example, counties or towns
may charge their own school taxes that are in addition to state taxes. The U.S. tax system is quite
complex.
US income tax is what is called a "progressive tax," which means that those who make more
money pay a higher tax rate. If you make very little money, you pay no income tax at all. If you
make a decent amount of money, you pay a fraction of it to the government. If you make a lot of
money, the fraction you pay is theoretically higher. This system is designed this way because
those who have enough money not to worry about putting food on the table each day can afford
to pay more to the government.
Taxable income is total income less allowable deductions. Income is broadly defined. Most
business expenses are deductible. Individuals may also deduct a personal allowance (exemption)
and certain personal expenses, including home mortgage interest, state taxes, contributions to
charity, and some other items. Some deductions are subject to limits.
Capital gains are taxable, and capital losses reduce taxable income to the extent of gains (plus, in
certain cases, $3,000 or $1,500 of ordinary income). Individuals currently pay a lower rate of tax
on capital gains and certain corporate dividends.

Income Tax
Income tax is probably one of the most well known forms of taxation. If any of you earn income
in the U.S. you will see the deductions on your paycheck. Every person who earns income in the
U.S. is supposed to pay income tax on both the federal and state level. Federal taxes include
social security and FICA. Each state also has its own form of income tax that employers also
withhold from your paycheck. If you earn over a certain amount, $6,750, you must file both
federal and state taxes before April 15th of each year.

Taxable Income
Income tax is imposed as a tax rate times taxable income. Taxable
income is defined as gross income less allowable deductions. Taxable
income as determined for federal tax purposes may be modified for
state tax purposes

Gross Income
Gross income means all income from whatever source derived. Gross income is not limited to
cash received. "It includes income realized in any form, whether money, property, or
services." Gross income includes wages and tips, fees for performing services, gain from sale of
inventory or other property, interest, dividends, rents, royalties, pensions, alimony, and many
other types of income. Items must be included in income when received or accrued. The amount
included is the amount the taxpayer is entitled to receive. Gains on property are the gross
proceeds less amounts returned, cost of goods sold, or tax basis of property sold.\

Federal Income Tax Brackets

The Federal income tax has 7 tax brackets: 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. The
amount of tax you owe depends on your filing status and income level.

Tax Year 2015

Single
Taxable Income
$0 to $9,225
$9,226 to $37,450
$37,451 to $90,750
$90,751 to $189,300
$189,301 to $411,500
$411,501 to $413,200
$413,201 or more

Tax Rate
10%
$922.50 plus 15% of the amount over $9,225
$5,156.25 plus 25% of the amount over $37,450
$18,481.25 plus 28% of the amount over $90,750
$46,075.25 plus 33% of the amount over $189,300
$119,401.25 plus 35% of the amount over $411,500
$119,996.25 plus 39.6% of the amount over $413,200

Married Filing jointly or Qualifying Widow(er):

Taxable Income
$0 to $18,450
$18,451 to $74,900
$74,901 to $151,200
$151,201 to $230,450
$230,451 to $411,500
$411,501 to $464,850
$464,851 or more

Tax Rate
10%
$1,845.00 plus 15% of the amount over $18,450
$10,312.50 plus 25% of the amount over $74,900
$29,387.50 plus 28% of the amount over $151,200
$51,577.50 plus 33% of the amount over $230,450
$111,324.00 plus 35% of the amount over $411,500
$129,996.50 plus 39.6% of the amount over $464,850

Married Filing Separately:

Taxable Income
$0 to $9,225
$9,226 to $37,450
$37,451 to $75,600
$75,601 to $115,225
$115,226 to $205,750
$205,751 to $232,425
$232,426 or more

Tax Rate
10%
$922.50 plus 15% of the amount over $9,225
$5,156.25 plus 25% of the amount over $37,450
$14,693.75 plus 28% of the amount over $75,600
$25,788.75 plus 33% of the amount over $115,225
$55,662.00 plus 35% of the amount over $205,750
$64,998.25 plus 39.6% of the amount over $232,425

Head of Household:

Taxable Income
$0 to $13,150
$13,151 to $50,200
$50,201 to $129,600
$129,601 to $209,850
$209,851 to $411,500
$411,501 to $439,000
$439,001 or more

Tax Rate
10%
$1,315.00 plus 15% of the amount over $13,150
$6,872.50 plus 25% of the amount over $50,200
$26,722.50 plus 28% of the amount over $129,600
$49,192.50 plus 33% of the amount over $209,850
$115,737.00 plus 35% of the amount over $411,500
$125,362.00 plus 39.6% of the amount over $439,000

2015 Standard Deduction Amounts

There are two main types of tax deductions: the standard deduction and itemized deductions. You
can claim one type of deduction on your tax return, but not both. For example, if you claim the
standard deduction, you cannot itemize deductions and vice versa (if you itemize deductions,
you cannot claim the standard deduction). You are allowed to use whichever type of deduction
results in the lowest tax.
The standard deduction is subtracted from your Adjusted Gross Income (AGI), thereby reducing
your taxable income. For tax year 2015, the standard deduction amounts are as follows:

Filing Status

Standard Deduction

Single

$6,300

Married Filing Jointly

$12,600

Married Filing Separately

$6,300

Head of Household

$9,250

Qualifying Widow(er)

$12,600

Tax exemptions for an individual and dependents

An exemption is an amount of money you can subtract from your Adjusted Gross Income, just
for having dependents. Personal and dependent exemptions for yourself and qualifying family
members reduce the amount of income on which you will be taxed. (In effect, these exemptions
are the same as deductions).
In 2015, you can claim a $4,000 exemption for each qualifying child, which may include your
child or stepchild, foster child, sibling or step-sibling, or descendants of any of these, such as
your grandchild. To qualify for the exemption, the child must live with you more than half of the
year and be under 19 at the end of the year, or fewer than 24 and a full-time student for the year
(defined as attending school for at least part of five calendar months during the year).

Medical expenses
You can deduct any expense you pay for the prevention, diagnosis or medical treatment of
physical or mental illness, and any amounts you pay to treat or modify any part or function of the
body for healthbut not for cosmetic purposes.
You can also deduct the cost of transportation to the locations where you can receive this kind of
medical care, your health insurance premiums, and your costs for prescription drugs and insulin.
Medical expenses are only deductible if you itemize, and only if they exceed 10 percent of your
Adjusted Gross Income. You can only deduct the medical and dental expenses that exceed those
percentages.
There is a temporary exemption from Jan. 1, 2013 to Dec. 31, 2016 for individuals age 65 and
older and their spouses. If you or your spouse is 65 years or older or turned 65 during the tax
year you are allowed to deduct unreimbursed medical care expenses that exceed 7.5% of your
adjusted gross income. The threshold remains at 7.5% of AGI for those taxpayers until Dec. 31,
2016.

Education expenses
In most cases, you can't deduct the full amount of your child's educational expenses because they
are considered to be personal expenses. However, the following credits may help ease your tax
burden:

Deduction for college tuition expenses. This deduction is available to you regardless of
whether you itemize your deductions. The maximum deduction is $4,000. The
maximum deduction drops to $2,000 and then disappears completely as income rises.
Expenses eligible for the deduction are higher education tuition and mandatory

enrollment fees. These same expenses are also eligible for the American Opportunity tax
credit but you cant take both in the same year.

American Opportunity and Lifetime Learning Credits. Available only for 2009 2017, the American Opportunity Credit is a tax credit of up to $2,500 for all four years
of a college education. Single taxpayers with modified adjusted gross income (MAGI)
of $80,000 or less and married taxpayers with MAGI of $160,000 or less are eligible.

Education Savings Accounts: Education Savings Accounts (ESAs) allow up to $2,000

each year to be contributed for each child under age 18. You can save a fairly sizable
amount over several years.

Student loan interest: Interest on loans you take out to pay for college or vocational
school expenses can also be deductible. The student loan interest deduction limit is
$2,500 for qualified student loans, but the deduction is phased out for higher-income
taxpayers. For 2015, the phase out begins at $120,000 on joint returns and at $60,000
for unmarried individuals.

Other ideas to consider

If you are the sole proprietor of your own business, consider employing your child (under
the age of 18) for certain tasks. You can pay your child up to $6,300 in wages (the
maximum standard deduction for the single person in 2015) without incurring income
taxes and most employment taxes. The wages would be tax-free to your young employee
and you could deduct the wages as a business expense on your own tax return.

If you have a child going to college in another area, consider purchasing a house or a
condominium for your child to live in. By treating the house or condo as a second home,
you can deduct the mortgage interest and real estate taxes on your own tax return.

Allowances, Differentials, and Other Special Pay

Payments received by U.S. Government civilian employees for working abroad, including pay
differentials, are taxable. However, certain foreign areas allowances, cost of living allowances,
and travel allowances are tax free.

Pay Differentials
Pay differentials you receive as financial incentives for employment abroad are taxable. Your
employer should have included these differentials as wages on your Form W-2, Wage and Tax
Statement.
Pay differentials are given for employment under adverse conditions (such as severe climate) or
because the location of the employment is outside the United States. The area does not have to be
a qualified hazardous duty area as discussed in Publication 3, Armed Forces Tax Guide.

Foreign Areas Allowances

Certain foreign areas allowances are tax free. Your employer should not have included the
following allowances as wages on your Form W-2:

Certain repairs to a leased home,

Education of dependents in special situations,

Motor vehicle shipment,

Separate maintenance for dependents,

Temporary quarters,

Transportation for medical treatment,

Travel, moving, and storage.

Allowances received by Foreign Service employees for representation expenses are also tax free
under the above provisions.

Cost-Of-Living Allowances
If you are stationed outside the continental United States or in Alaska, your gross income does
not include cost-of-living allowances granted by regulations approved by the President of the
United States (other than amounts received under Title II of the Overseas Differentials and
Allowances Act). Cost-of-living allowances are not included on your Form W-2.

Lodging Furnished to a Principal Representative of the United States

Lodging (including utilities) provided as an official residence to you as a principal representative
in a foreign country is tax free. However, compensation paid by your employer for your usual
household expenses are taxable, and withholding from your pay to cover these expenses are not
deductible.

Federal Court Employees

If you are a federal court employee, the preceding paragraph also applies to you. The cost-ofliving allowance must be granted by rules similar to regulations approved by the President.

American Institute in Taiwan

If you are an employee of the American Institute in Taiwan, allowances you receive are exempt
from U.S. tax if they are equivalent to tax-exempt allowances received by civilian employees of
the U.S. Government.

Federal Reemployment Payments after Serving with an International

Organization
If you are a federal employee who is reemployed by a federal agency after serving with an
international organization, you must include in income any reemployment payments you receive.

Peace Corps

If you are a Peace Corps volunteer or volunteer leader, some allowances you receive are taxable
and others are not.
Allowances are taxable and must be included on your Form W-2 and reported on your return as
wages. These include:

Allowances paid to your spouse and minor children while you are training in the United
States,

Living allowances designated by the Director of the Peace Corps as basic compensation.
This is the part for personal items such as domestic help, laundry and clothing maintenance,
entertainment and recreation, transportation, and other miscellaneous expenses,

Leave allowances,

Readjustment allowances or "termination payments."

Nontaxable allowances should not be included on your Form W-2, whether paid by the U.S.
government or the foreign country, in which you are stationed, includes:

Travel allowances and

Part of living allowances for housing, utilities, food, clothing, and household supplies.

Personal Exemption

Tax year

Personal

Tax year

exemption

Personal
exemption

2002

$3,000

2010

$3,650

2003

$3,050

2011

$3,700

2004

$3,100

2012

$3,800

2005

$3,200

2013

$3,900

2006

$3,300

2014

$3,950

2007

$3,400

2015

$4,000

2008

$3,500

2016

$4,050

2009

$3,650

Business deductions

Most business deductions are allowed regardless of the form in which the business is conducted.
Thus, an individual small business owner is allowed most of the same business deductions as a
publicly traded corporation.
Deductions for most meals and entertainment costs are limited to 50% of the costs, and costs of
starting up a business (sometimes called pre-operating costs) are deductible ratably over 60
months. Deductions for lobbying and political expenses are limited. Some other limitations
apply.
Expenses that are likely to produce future benefits must be capitalized. The capitalized costs are
then deductible as depreciation (see MACRS) or amortization over the period future benefits are
expected. Examples include costs of machinery and equipment and costs of making or building
property.
Most personal, living, and family expenses are not deductible.
Individuals are allowed a special deduction called a personal exemption for dependents. This is a
fixed amount allowed each taxpayer, plus an additional fixed amount for each child or other
dependents the taxpayer supports. The amount of this deduction is $4,000 for 2015. The amount
is indexed annually for inflation. The amount of exemption is phased out at higher incomes
through 2009 and after 2012 (no phase out in 20102012).

Capital Gains
Taxable income includes capital gains. However, individuals are taxed at a lower rate on long
term capital gains and qualifying dividends (see below). A capital gain is the excess of the sales
price over the tax basis (usually, the cost) of capital assets, generally those assets not held for sale
to customers in the ordinary course of business. Capital losses (where basis is more than sales
price) are deductible, but deduction for long term capital losses is limited to the total capital
gains for the year, plus for individuals up to $3,000 of ordinary income ($1,500 if married filing
separately). An individual may exclude $250,000 ($500,000 for a married couple filing jointly)
of capital gains on the sale of the individual's primary residence, subject to certain conditions and
limitations. Gains on depreciable property used in a business are treated as ordinary income to
the extent of depreciation previously claimed.
Before 1986 and from 2004 onward, individuals have been subject to a reduced rate of federal
tax on capital gains (called long-term capital gains) on certain property held more than 12
months. This reduced rate (15% or 20%, depending on regular tax bracket) applies for regular tax
and the Alternative Minimum Tax. The reduced rate also applies to dividends from corporations
organized in the United States or a country with which the United States has an income tax
treaty.

Ordinary

Long-

Short-

Recapture of

Long-term

Long-term Gain

Income

term

term

Depreciation

Gain on

on Certain Small

Rate

Capital

Capital

on Long-term

Collectibles

Business Stock

Gain

Gain Rate

Gain of Real

Rate*

Estate

10%

0%

10%

10%

10%

10%

15%

0%

15%

15%

15%

15%

25%

15%

25%

25%

25%

25%

28%

15%

28%

25%

28%

28%

33%

15%

33%

25%

28%

28%

35%

15%

35%

25%

28%

28%

* Capital gains up to $250,000 ($500,000 if filed jointly) on real estate used as primary
residence are exempt.
After 2012, an additional tax bracket of 39.6% applies to ordinary income. The tax rate on
long-term capital gains and dividends beginning 2013 for those in the 39.6% bracket is 20%
plus a 3.8% surcharge for high-income filers.

Corporate tax rates

Federal corporate income tax is imposed at graduated rates from 15% to 35%. The lower rate
brackets are phased out at higher rates of income, with all income subject to tax at 34% to 35%
where taxable income exceeds $335,000. Additional tax rates imposed at the state and local level
vary widely by jurisdiction, from under 1% to over 16%. State and local income taxes are
allowed as tax deductions in computing federal taxable income.

Deductions for corporations

Corporations are not allowed the personal deductions allowed to individuals, such as deductions
for exemptions and the standard deduction. However, most other deductions are allowed. In
addition, corporations are allowed certain deductions unique to corporate status. These include a
partial deduction for dividends received from other corporations, deductions related
to organization costs, and certain other items.
Some deductions of corporations are limited at federal or state levels.

Estates and trusts

Estates and trusts may be subject to income tax at the estate or trust level, or
the beneficiaries may be subject to income tax on their share of income. Where the all
income must be distributed, the beneficiaries are taxed similarly to partners in a
partnership. Where income may be retained, the estate or trust is taxed. It may get a
deduction for later distributions of income. Estates and trusts are allowed only those
deductions related to producing income, plus $1,000. They are taxed at graduated rates
that increase rapidly to the maximum rate for individuals. The tax rate for trust and estate
income in excess of $11,500 was 35% for 2009. Estates and trusts are eligible for the
reduced rate of tax on dividends and capital gains through 2011.

Retirement savings and fringe benefit plans

Employers get a deduction for amounts contributed to a qualified employee retirement plan or
benefit plan. The employee does not recognize income with respect to the plan until he or she
receives a distribution from the plan. The plan itself is organized as a trust and is considered a
separate entity. For the plan to qualify for tax exemption, and for the employer to get a
deduction, the plan must meet minimum participation, vesting, funding, and operational
standards.

Examples of qualified plans include:

Pension plans (defined benefit pension plan),

Profit sharing plans (defined contribution plan),

Employee Stock Ownership Plan (ESOPs),

Stock purchase plans,

Health insurance plans,

Employee benefit plans,

Cafeteria plans.

Employees or former employees are generally taxed on distributions from retirement or stock
plans. Employees are not taxed on distributions from health insurance plans to pay for medical
expenses. Cafeteria plans allow employees to choose among benefits (like choosing food in a
cafeteria), and distributions to pay those expenses are not taxable.
In addition, individuals may make contributions to Individual Retirement Accounts (IRAs).
Those not currently covered by other retirement plans may claim a deduction for contributions to
certain types of IRAs. Income earned within an IRA is not taxed until the individual withdraws
it.

Credits
The federal and state systems offer numerous tax credits for individuals and businesses. Among
the key federal credits for individuals are:
Child credit: a credit up to $1,000 per qualifying child.

 Child and dependent care credit: a credit up to $6,000, phased out at incomes above
$15,000.
Earned Income Tax Credit: this refundable credit is granted for a percentage of income
earned by a low income individual. The credit is calculated and capped based on the
number of qualifying children, if any. This credit is indexed for inflation and phased out
for incomes above a certain amount. For 2015, the maximum credit was $6,422.[40]
Credit for the elderly and disabled: A nonrefundable credit up to $1,125
Two mutually exclusive credits for college expenses.
Businesses are also eligible for several credits. These credits are available to individuals and
corporations, and can be taken by partners in business partnerships. Among the federal credits
included in a "general business credit" are:
Credit for increasing research expenses.
Work Incentive Credit or credit for hiring people in certain enterprise zones or on
welfare.
A variety of industry specific credits.
Alternative minimum tax
Taxpayers must pay the higher of the regular income tax or the alternative minimum tax (AMT).
Taxpayers who have paid AMT in prior years may claim a credit against regular tax for the prior
AMT. The credit is limited so that regular tax is not reduced below current year AMT.
AMT is imposed at a nearly flat rate (20% for corporations, 26% or 28% for individuals, estates,
and trusts) on taxable income as modified for AMT. Key differences between regular taxable
income and AMT taxable income include:
The standard deduction and personal exemptions are replaced by a single deduction,
which is phased out at higher income levels,

 No deduction is allowed individuals for state taxes,

Most miscellaneous itemized deductions are not allowed for individuals,
Depreciation deductions are computed differently, and
Corporations must make a complex adjustment to more closely reflect economic income.

Accounting periods and methods

The United States tax system allows individuals and entities to choose their tax year. Most
individuals choose the calendar year. There are restrictions on choice of tax year for some closely
held entities. Taxpayers may change their tax year in certain circumstances, and such change
may require IRS approval.
Taxpayers must determine their taxable income based on their method of accounting for the
particular activity. Most individuals use the cash method for all activities. Under this method,
income is recognized when received and deductions taken when paid. Taxpayers may choose or
be required to use the accrual method for some activities. Under this method, income is
recognized when the right to receive it arises, and deductions are taken when the liability to pay
arises and the amount can be reasonably determined. Taxpayers recognizing cost of goods
sold on inventory must use the accrual method with respect to sales and costs of the inventory.
Methods of accounting may differ for financial reporting and tax purposes. Specific methods are
specified for certain types of income or expenses. Gain on sale of property other than inventory
may be recognized at the time of sale or over the period in which installment sale payments are
received. Income from long term contracts must be recognized ratably over the term of the
contract, not just at completion. Other special rules also apply.

Special industries
Tax rules recognize that some types of businesses do not earn income in the traditional manner
and thus require special provisions. For example, insurance companies must ultimately pay
claims to some policy holders from the amounts received as premiums. These claims may

happen years after the premium payment. Computing the future amount of claims requires
actuarial estimates until claims are actually paid. Thus, recognizing premium income as received
and claims expenses as paid would seriously distort an insurance company's income.
Special rules apply to some or all items in the following industries:

Insurance companies (rules related to recognition of income and expense; different rules
apply to life insurance and to property and casualty insurance)

Shipping (rules related to the revenue recognition cycle

Extractive industries (rules related to expenses for exploration and development and for
recovery of capitalized costs)

In addition, mutual funds (regulated investment companies) are subject to special rules allowing
them to be taxed only at the owner level. The company must report to each owner his/her share
of ordinary income, capital gains, and creditable foreign taxes. The owners then include these
items in their own tax calculation. The fund itself is not taxed, and distributions are treated as
a return of capital to the owners. Similar rules apply to real estate investment trusts and real
estate mortgage investment conduits

Income Tax Returns

There are several different types of individual income tax return forms issued by the IRS. You
must use the tax form that corresponds with your particular situation and allows you to claim the
income, deductions, credits, etc. that apply to you.
The most common types of income tax returns include the following:

Form 1040 (U.S. Individual Income Tax Return) (a.k.a. the long form)

Form 1040A (U.S. Individual Income Tax Return) (a.k.a. the short form)

Form 1040EZ (Income Tax Return for Single and Joint Filers With No Dependents)

Form 1040NR (U.S. Nonresident Alien Income Tax Return)

Form 1040NR-EZ (U.S. Income Tax Return for Certain Nonresident Aliens With No
Dependents)

Most U.S. citizens will need to file a federal income tax return every year and determine how
much they owe in federal income tax. While the majority of people are required to file and pay
income taxes, there are certain low-income earners (as well as children) who are exempt. You
will most likely have to file an income tax return, but you should check the IRSs filing
requirements before you proceed.

Sales Tax
Another form of tax that you will become very familiar with is sales tax. This is the tax that is
charged on your purchases, such as if you buy a pack of gum. Sales tax is a state tax and varies
from state to state as well as within the state. For example, NY State Sales Tax is 7% and NJ is
3%, but Albany has 8% sales tax while Syracuse has only 7%. Within the state, municipalities
have the right to raise the sales tax above the state limit. There are also other rules surrounding
sales tax, such as which items are taxed and which are not. For example, in NY gum is taxed, but
milk is not. In NJ food is taxed, but clothes are not. As you can see the tax system in this country
is quite complex.
In addition to the many types of taxes, there are also discrepancies between individuals and
businesses.
As stated above, individuals must file their income tax before April 15th. If the person has a sole
proprietorship, those earnings will be included on their personal income tax form. If a person is
part of a partnership, their earnings from the partnership will be included on their personal
income tax form. There are no taxes on the partnership as a whole, but on the earnings passed
down to the partners. Partnerships are required to file a tax return, but it is only an informational
return.

Corporations are a separate legal entity and are subject to corporate tax on taxable income.
Corporate tax rates are different than personal tax rates. Corporate earnings are subject to double
taxation. What this means is that corporations pay taxes on their earnings and then with after tax
income they pay stockholders dividends, which are subject to capital gains tax. The dividends
must be reported on the stockholder's personal tax form and are taxed at capital gains tax rates.
This is what is commonly called double taxation.

Example of a tax computation

Income tax for year 2016:
Single taxpayer, no children, under 65 and not blind, taking standard deduction;

$40,000 gross income $6,300 standard deduction $4,050 personal exemption =

$29,650 taxable income

$9,275 10% = $927.50 (taxation of the first income bracket)

$29,650 $9,275 = $20,375.00 (amount in the second income bracket)

$20,375.00 15% = $3,056.25 (taxation of the amount in the second income

bracket)

Total income tax is $927.50 + $3,056.25 = $3,983.75 (~9.96% effective tax)

Note, however, that taxpayers with taxable income of less than $100,000 must use IRS provided
tax tables. Under that table for 2015, the income tax in the above example would be $3,998.00.[21]
In addition to income tax, a wage earner would also have to pay Federal Insurance Contributions
Act tax (FICA) (and an equal amount of FICA tax must be paid by the employer):

$40,000 (adjusted gross income)

$40,000 6.2%[22] = $2,480 (Social Security portion)

$40,000 1.45% = $580 (Medicare portion)

Total FICA tax paid by employee = $3,060 (7.65% of income)

Total federal tax of individual = $3,983.75 + $3,060.00 = $7,043.75 (~17.63% of income)

Total federal tax including employer's contribution:

Total FICA tax contributed by employer = $3,060 (7.65% of income)

Total federal tax of individual including employer's contribution = $3,983.75 + $3,060.00

+ $3,060.00 = $10,103.25 (~25.28% of income)