Question

In 2004, the social security and medicare rate combined was 6.45%, up to $87,900 earned. ten years later, the percent had increased to 7.65% and the maximum taxable income had increased to $117,000. if a person earned $85,000 in 2004, and in 2014, what was the difference in the social security and medicare taxes paid?

1) 6.45%
2) 6.55%
3) 5.45%
4) 5.55%

Answer 1

A person who earned $85,000 in both 2004 and 2014 would have paid $5,482.50 in taxes in 2004 and $6,502.50 in 2014, leading to a difference of $1,020. When converted into a percentage (1.2%) of the $85,000 taxable income, none of the provided options accurately reflect this value.

Step-by-step explanation:

The question is asking us to calculate the difference in the Social Security and Medicare taxes paid by a person who earned $85,000 in both 2004 and 2014, given changes in the combined tax rates and taxable income limits. In 2004, the combined Social Security and Medicare rate was 6.45%, and in 2014, it was 7.65%. To find the difference in tax paid, we calculate the tax for each year:

• 2004 tax: $85,000 * 6.45% = $5,482.50
• 2014 tax: $85,000 * 7.65% = $6,502.50

Now, let's find the difference:

Difference = 2014 tax - 2004 tax

Difference = $6,502.50 - $5,482.50 = $1,020

To express this difference as a percentage of the $85,000 income:

Difference percentage = ($1,020 / $85,000) * 100%

Difference percentage = 1.2%

This is not one of the provided options, hence there may have been an error in the question or options given. The calculation based on the given rates shows a difference greater than the options provided.