Final answer:
The correct answer is option C: FICA Tax = 6.2% of the first $97,500 earned, Medicare Tax = 1.45% of all earnings, reflecting the correct rates for Social Security and Medicare taxes deducted from an employee's paycheck.
Step-by-step explanation:
To complete the earnings statements, we need to consider the correct FICA and Medicare tax rates. The FICA tax is referred to as the Social Security tax and, as of the information provided, is imposed at a rate of 6.2% of earnings but only up to a certain wage limit. This wage limit changes over time, and it is important to utilize the correct limit for the relevant tax year. Meanwhile, Medicare tax is imposed at a rate of 1.45% of all earnings and does not come with a wage limit.
The correct completion of the earnings statements would be: FICA Tax = 6.2% of the first $97,500 earned, Medicare Tax = 1.45% of all earnings. This corresponds to option C from the given choices. Employers match these contributions, but for the employee, these are the percentages deducted from their paychecks.
It is worth noting that payroll taxes are split between the employer and employee, but economists suggest that the employer's share may be indirectly passed on to the employee through lower wages. Therefore, the overall incidence of payroll taxes may effectively fall on the employee.