Question

Paloma Co. has four employees. FICA Social Security taxes are 6.2% of the first $137,700 paid to each employee, and FICA Medicare taxes are 1.45% of gross pay. Additionally, for the first quarter of the year, each of their four employees earned $20,000.

Answer 1

The question is about calculating FICA Social Security and Medicare taxes for employees of Paloma Co., showing both employer and employee contributions. It also touches on the potential impact of employer tax contributions on employee wages and the additional responsibilities of independent contractors in the gig economy.

Step-by-step explanation:

The subject in question involves FICA Social Security and FICA Medicare taxes, which are types of payroll taxes in the United States. In the scenario provided, Paloma Co. has four employees each earning $20,000 for the first quarter of the year. The current rates are 6.2% for Social Security up to the wage limit of $137,700, and a flat rate of 1.45% for Medicare with no wage ceiling. Therefore, the employer and the employee each pay 6.2% of the earnings for Social Security taxes and 1.45% each for Medicare taxes from the employees' gross pay.

Payroll taxes are split between the employer and the employee. The employee sees these deductions directly from their paycheck. However, it is often noted by economists that the employer's share may effectively be passed back to employees in the form of lower wages. Independent contractors, participating in the 'gig economy' and receiving a 1099, are responsible for paying both the employee and employer portions of these taxes.