Multiple Choice
Which of the following best describes a key difference between payroll taxes and income taxes?
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9. Current Liabilities
Payroll and Payroll Taxes
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Which of the following would affect an employee's net pay?
A
Federal income tax withholding
B
Employer's matching contribution to a retirement plan
C
Company's payment of unemployment taxes
D
Employer's contribution to Social Security
Verified step by step guidance1
Understand the concept of net pay: Net pay is the amount an employee takes home after all deductions are subtracted from their gross pay. Deductions include taxes, benefits, and other withholdings.
Identify the deductions that directly affect net pay: Federal income tax withholding is a deduction taken directly from the employee's paycheck, reducing their net pay.
Clarify the role of employer contributions: Employer's matching contributions to a retirement plan, payment of unemployment taxes, and contributions to Social Security do not directly reduce the employee's net pay. These are costs borne by the employer and do not appear as deductions on the employee's paycheck.
Focus on the impact of federal income tax withholding: This is a mandatory deduction from the employee's gross pay, directly affecting the net pay calculation.
Summarize the distinction: Only deductions taken directly from the employee's paycheck, such as federal income tax withholding, affect net pay. Employer-paid contributions and taxes do not reduce the employee's net pay.
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