Question

An employee earned $155,000 working for an employer in the current year. The current rate for FICA Social Security is 6.2% payable on earnings up to $127,200 maximum per year and the rate for FICA Medicare 1.45% of all earnings. The employee’s total FICA payroll tax is:

A.$11,857.50.

B.$9,730.80.

C.$10,133.90.

D.$2,247.50.

E.$0, since the FICA tax is paid entirely by the employer.

Answer 1

THE CORRECT OPTION IS C.$10133.90

FICA payroll tax:

  FICA stands for " Federal Insurance Contributions Act". It is a compulsory payroll tax deduction made by the government, used to pay for programs like Social Security(disability, insurance, old age, survivors) and Medicare ( for senior citizens aged over 65).

When it comes to funding the FICA, the employee pays 50% of FICA from their salary and the employer contributes the remaining 50% of their revenue. It is mandatory for the employer to withhold and pay the employee's contribution from employees' paycheck, and remit those funds to the government on their behalf.

Total FICA tax= Social security tax + Medicare tax

Social security tax: The Social security tax rate is 6.2% of employee's salary subject to a Social security maximum ( published by Social security administration).That means no Social security withholding is taken from employees above that maximum amount.

Medicare tax: The medicare tax of 1.45% on the total earnings of the employees is levied by FICA. Unlike social security, there is no maximum salary base allowed here. Also an additional medicare tax of 0.9% is levied if the earnings of employee exceed $200,000(for singles)

Computation of FICA Payroll tax( employee's contribution)

Employee's Gross earnings	$ 155,000.00
Social security tax (A) ($127,000*6.2%)	7886.40
Medicare tax (B) (155,000*1.45%)	2247.50
Total FICA payroll tax (A)+(B)	$ 10133.90

Therefore, Employees Total FICA payroll tax is $10,133.90

This is 50% of the total contribution amount deducted from paycheck of an employee. The rest 50% is deducted from the employer's revenues.

Even though the tax is paid by the employer to the government, the employees contribute his portion of contribution as Employee's FICA payroll tax.

Working Notes:

1. Social security tax is calculated on the maximum of $127,200 per year as given in the question

2. There is no additional Medicare tax of 0.9% since the employee's earnings don't exceed $200,000