Question

All section 125 deductions shelter the employee from paying _____ and the employer from paying _____.

a) Income tax, FUTA tax
b) Medicare tax, Social Security tax
c) Federal withholding, State withholding
d) Federal withholding, FUTA tax

Answer 1

Section 125 deductions allow employees to pay for certain expenses with pre-tax dollars, reducing their taxable income and saving them money. Employers also benefit by not having to pay Medicare tax and Social Security tax on the amount of employee wages used for these deductions.

Step-by-step explanation:

In this case, the correct answer is b) Medicare tax, Social Security tax.

Section 125 deductions are benefits offered by employers to their employees, which allow them to pay for certain expenses with pre-tax dollars. These deductions can include things like health insurance premiums, flexible spending accounts, and retirement contributions.

These deductions help employees save money by reducing their taxable income, which means they pay less in income tax. Additionally, employers can also save money because they don't have to pay Medicare tax and Social Security tax on the amount of employee wages that are used for these deductions.