Question

FICA taxes are imposed on _______________ if an employee elects to have a 401(k) deduction.

A) net pay plus pre-tax deductions

B) gross pay less pre-tax deductions

C) net pay

D) gross pay

Answer 1

FICA taxes are imposed on gross pay less pre-tax deductions such as 401(k) contributions. Employees usually contribute 6.2% for Social Security and 1.45% for Medicare before taxes.

Step-by-step explanation:

FICA taxes are imposed on gross pay less pre-tax deductions. When an employee elects to have a 401(k) deduction, it means that the amount they contribute to their 401(k) is not included in the taxable income for the purposes of calculating FICA taxes. FICA stands for the Federal Insurance Contributions Act, and it includes taxes for Social Security and Medicare. Employees typically see 6.2% deducted from their paycheck for Social Security, and 1.45% for Medicare. These deductions are made before taxes are applied to the paycheck, hence they are taken from gross pay (total earnings before any deductions) and not from the net pay (earnings after all deductions).