A construction company pays an independent contractor $45,000 annually. If this worker is reclassified as an employee, what is the approximate additional cost to the employer for FICA taxes?
Correct Answer
C) $3,443
Employers must pay 7.65% FICA taxes (6.2% Social Security + 1.45% Medicare) on employee wages. $45,000 × 0.0765 = $3,442.50, which rounds to approximately $3,443.
Why This Is the Correct Answer
When an independent contractor becomes an employee, the employer becomes responsible for paying the employer portion of FICA taxes. FICA consists of Social Security tax at 6.2% and Medicare tax at 1.45%, totaling 7.65%. Multiplying $45,000 by 7.65% gives $3,442.50, which rounds to $3,443. This represents the additional cost burden the employer must bear for payroll taxes.
Why the Other Options Are Wrong
Option B: $2,880
$4,500 represents exactly 10% of the annual salary, which suggests confusion with other tax rates or benefit percentages rather than the specific 7.65% FICA employer contribution rate.
Option D: $4,500
$2,880 represents only 6.4% of the annual salary, which is less than the required 7.65% FICA rate and likely represents an incomplete calculation missing part of the Medicare tax component.
Memory Technique
Remember 'FICA 765' - FICA employer rate is 7.65%. Think 'Seven-Sixty-Five keeps FICA alive' to remember the employer's share of Social Security and Medicare taxes.
Reference Hint
Look up Chapter 13 - Employment Law and Labor Relations, specifically the section on payroll taxes and FICA contributions in your Florida General Contractor reference manual.
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