Multiple Choice
Which of the following statements about payroll taxes is true?
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9. Current Liabilities
Payroll and Payroll Taxes
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Which of the following payroll taxes is paid by both the employee and the employer?
A
State unemployment tax (SUTA)
B
Federal unemployment tax (FUTA)
C
Federal income tax
D
Social Security tax (FICA)
Verified step by step guidance1
Understand the concept of payroll taxes: Payroll taxes are taxes imposed on employers and employees, and they are typically calculated as a percentage of the employee's wages. Some taxes are paid solely by the employer, while others are shared between the employer and the employee.
Review the specific taxes mentioned in the problem: State unemployment tax (SUTA) and Federal unemployment tax (FUTA) are paid only by the employer, not the employee. Federal income tax is withheld from the employee's paycheck but is not paid by the employer.
Focus on Social Security tax (FICA): The Federal Insurance Contributions Act (FICA) tax includes Social Security and Medicare taxes. Both the employer and the employee contribute equally to this tax, making it unique among the options provided.
Break down the FICA tax: The Social Security portion of FICA is calculated as a percentage of the employee's wages, up to a certain wage base limit. The employer matches the amount withheld from the employee's paycheck, effectively sharing the tax burden.
Conclude that Social Security tax (FICA) is the correct answer: Since both the employer and the employee are required to pay equal portions of the Social Security tax, it is the payroll tax that fits the criteria described in the problem.
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