A general contractor has gross wages of $85,000 for an employee in 2024. What is the total FICA tax amount (employer and employee combined) that must be paid?
Correct Answer
C) $13,005.00
FICA includes Social Security (6.2% each for employer and employee = 12.4%) and Medicare (1.45% each = 2.9%). Total FICA rate is 15.3%. $85,000 × 15.3% = $13,005.00.
Why This Is the Correct Answer
FICA tax consists of Social Security tax (6.2% each for employer and employee = 12.4% total) and Medicare tax (1.45% each for employer and employee = 2.9% total). The combined FICA rate is 15.3%. For gross wages of $85,000, the total FICA tax is $85,000 × 15.3% = $13,005.00. This represents the combined employer and employee portions that must be paid.
Why the Other Options Are Wrong
Option A: $6,502.50
$6,502.50 represents only half of the total FICA obligation. This would be either just the employer's portion or just the employee's portion (7.65% × $85,000), but the question asks for the combined total of both employer and employee FICA taxes.
Option B: $10,404.00
$10,404.00 appears to be calculated using an incorrect FICA rate of approximately 12.24%. This might result from miscalculating the Social Security and Medicare tax rates or applying an outdated or incorrect combined percentage to the gross wages.
Option D: $5,202.00
$5,202.00 is significantly lower than any reasonable FICA calculation. This amount represents approximately 6.12% of the gross wages, which doesn't correspond to any standard FICA component rate and suggests a fundamental calculation error.
Memory Technique
Remember 'FICA 15-3': Social Security 12.4% + Medicare 2.9% = 15.3% total FICA rate for combined employer/employee taxes.
More Business & Finance Questions
A general contractor purchases equipment worth $45,000 with a useful life of 9 years and no salvage value. Using straight-line depreciation, what is the annual depreciation expense?
What is the typical recommended coverage amount for general liability insurance for a small to medium-sized general contracting business?
A contractor estimates startup costs of $75,000 for equipment, $25,000 for initial inventory, $15,000 for insurance premiums, and $10,000 for working capital. They can finance 70% of the total. How much cash do they need?
When establishing professional relationships with architects and engineers, what is the most important factor for a general contractor to consider?
A partnership agreement for a construction company should address all of the following EXCEPT:
A contractor purchases a truck for $60,000. After 5 years, it has accumulated depreciation of $35,000. What is the truck's book value?
A contractor's business plan projects first-year revenue of $500,000 with a 15% net profit margin. If actual revenue is $450,000 with the same profit margin, what is the variance in net profit?
Using the Modified Accelerated Cost Recovery System (MACRS), construction equipment is typically depreciated over how many years?
A contractor is comparing financing options for equipment purchase. Option A: $80,000 cash purchase. Option B: $20,000 down, $65,000 financed at 6% for 4 years. What is the total cost of Option B?
A contractor purchases equipment using a capital lease with a present value of $120,000. How should this be recorded on the balance sheet?