What is the combined amount (in percent) of the employee and employer Social Security tax rate? (Assume wages do not exceed $118,500 per year.)

Solutions

Expert Solution

Step 1: Employee and employer social security tax

The federal Social Security system provides retirement, disability, survivorship, and medical benefits to qualified workers. Laws require employers to withhold Federal Insurance Contributions Act (FICA) taxes from employees’ pay to cover costs of the system. Employers separate FICA taxes into two groups:

(1) retirement, disability, survivorship and

(2) medical

Step 2: The tax rate

Taxes for Social Security and Medicare are computed separately. The amount withheld from each employee’s pay for Social Security tax was 6.2% of the first $118,500 the employee earns in the calendar year.

Step 3: Computation of tax

The social security tax is $7,347.

Sahil Dangi answered 1 year ago

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