A contractor has 15 employees with a total monthly payroll of $75,000. If the current FICA rate is 7.65%, what is the monthly FICA tax obligation for the employer?
Correct Answer
A) $5,737.50
The employer's FICA obligation is calculated as: $75,000 × 7.65% = $5,737.50. This represents the employer's matching contribution for Social Security and Medicare taxes.
Why This Is the Correct Answer
The employer's FICA tax obligation is calculated by multiplying the total monthly payroll by the FICA rate. Under federal law, employers must match the FICA taxes withheld from employees' paychecks. The calculation is straightforward: $75,000 × 7.65% = $5,737.50. This represents the employer's portion of Social Security (6.2%) and Medicare (1.45%) taxes that must be paid in addition to the amounts withheld from employee wages.
Why the Other Options Are Wrong
Option C: $4,875.00
This amount ($4,875) would result from using a 6.5% rate instead of the correct 7.65% FICA rate, which understates the employer's tax obligation.
Option D: $6,250.00
This amount ($7,500) represents 10% of the payroll, which is significantly higher than the actual FICA rate and would result in a substantial overpayment.
Memory Technique
Remember 'FICA 765' - the FICA rate is 7.65%, which breaks down as 6.2% Social Security + 1.45% Medicare = 7.65% total.
Reference Hint
Look up payroll tax obligations and FICA requirements in the business law or contractor responsibilities chapter of your reference manual.
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