Final answer:
Employers receive deductions for both compensation paid to employees and for employment taxes. These taxes, split between the employer and employee, are reflected in payroll deductions for Social Security and Medicare, but can indirectly affect an employee's net wages.
Step-by-step explanation:
True, employers do receive a deduction for compensation paid to employees and also for employment taxes paid on their behalf. When employers pay wages, they are not only responsible for withholding a portion for federal and state taxes but also for paying employment taxes themselves. This includes the employer's contribution to Social Security and Medicare. Payroll taxes are split between the employer and the employee, with the employee's paycheck showing a 6.2% deduction for Social Security and a 1.45% deduction for Medicare. The employer contributes an equal amount. However, this cost is often reflected in the overall compensation package offered to an employee, meaning the incidence of the tax can fall on the employee through lower wages. Additionally, for independent contractors, such as those in the gig economy who might receive a 1099 tax statement, the situation is different. They are responsible for the entire payroll tax since they must cover both the employer and employee shares.