An employee earns $3,200 gross pay monthly. What is the employee's Medicare tax deduction?
Correct Answer
B) $46.40
Medicare tax rate is 1.45% of gross pay. $3,200 × 1.45% = $46.40 is deducted from the employee's pay.
Why This Is the Correct Answer
The Medicare tax rate for employees is 1.45% of gross wages with no wage cap limit. To calculate the deduction, multiply the gross monthly pay of $3,200 by 1.45%. This gives us $3,200 × 0.0145 = $46.40. This amount is deducted from the employee's paycheck as their portion of Medicare tax.
Why the Other Options Are Wrong
Option C: $23.20
$92.80 represents 2.9% of $3,200, which would be the combined employer and employee Medicare tax rate (1.45% × 2). However, the question asks only for the employee's deduction.
Option D: $198.40
$198.40 represents 6.2% of $3,200, which is the Social Security tax rate, not the Medicare tax rate. This is a common confusion between the two payroll taxes.
Memory Technique
Remember 'Medicare 1.45' - think 'Medical care for ONE person at 1.45%' to distinguish it from Social Security's higher 6.2% rate that covers multiple benefits.
Reference Hint
Look up payroll tax rates in the Business and Finance chapter, specifically the section on employee withholdings and FICA taxes.
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