Final answer:
Employees must pay a proportional Medicare payroll tax on all wages without an upper limit and Social Security tax up to a specific wage base limit, beyond which the tax does not apply, making the original statement false.
Step-by-step explanation:
The statement that employees must pay the Social Security tax on all of their wages and Medicare tax on wages up to a fixed amount is false. The Medicare payroll tax is indeed a proportional tax, meaning that it is a flat percentage of all wages earned, without an upper limit. In contrast, the Social Security payroll tax is only proportional up to a wage base limit. After that limit, it becomes a regressive tax where those with higher incomes pay a smaller share of their income in tax.
For instance, in past years, the Social Security payroll tax had a wage limit, such as $118,500 in 2015 and $117,900 in 2014. This means that income above this limit was not subject to Social Security taxes in those years. On the other hand, Medicare taxes have no wage ceiling, and the rate of 2.9% applies to all earned income.