An employee earns $4,500 gross pay per month. Calculate the total FICA taxes (employee and employer portions combined) for this employee for one month.
Correct Answer
C) $688.50
Total FICA rate (employee + employer) is 15.3% (7.65% each). $4,500 × 15.3% = $688.50. This includes Social Security (12.4% total) and Medicare (2.9% total).
Why This Is the Correct Answer
FICA taxes consist of Social Security (6.2% employee + 6.2% employer = 12.4% total) and Medicare (1.45% employee + 1.45% employer = 2.9% total). The combined FICA rate is 15.3% when including both employee and employer portions. Multiplying $4,500 by 15.3% gives $688.50, which represents the total FICA tax burden for this employee's monthly wages.
Why the Other Options Are Wrong
Option A: $344.25
$344.25 represents only the employee's portion of FICA taxes (7.65% of $4,500), but the question asks for the total including both employee and employer portions.
Option B: $918.00
$918.00 would result from using a rate of 20.4%, which is significantly higher than the actual FICA rate and likely represents a calculation error.
Memory Technique
Remember '15.3 for FICA total' - the employee and employer each pay 7.65%, so double it to get the combined burden of 15.3%.
Reference Hint
Look up payroll tax calculations and FICA rates in the business law or employment regulations chapter of your contractor reference manual.
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