Multiple Choice
Which of the following costs would most likely be classified as a committed fixed cost for a retailer?
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9. Current Liabilities
Types of Liabilities
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Which of the following taxes has a ceiling on the amount of annual earnings subject to tax?
A
Federal income tax
B
Social Security tax
C
State income tax
D
Medicare tax
Verified step by step guidance1
Understand the concept of a tax ceiling: A tax ceiling refers to a limit on the amount of annual earnings subject to a specific tax. Once earnings exceed this limit, no additional tax is levied on the excess amount.
Review the characteristics of each tax mentioned: Federal income tax, State income tax, Medicare tax, and Social Security tax. Note that federal and state income taxes do not have a ceiling; they are applied progressively based on income levels.
Focus on Social Security tax: Social Security tax has a specific annual earnings limit, known as the 'wage base limit.' Earnings above this limit are not subject to Social Security tax.
Compare Social Security tax to Medicare tax: Medicare tax does not have a ceiling; it applies to all earnings, and an additional Medicare tax may apply to high-income earners.
Conclude that Social Security tax is the correct answer because it is the only tax among the options provided that has a ceiling on the amount of annual earnings subject to tax.
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