Final answer:
On 401(k) contributions, employees must pay Social Security and Medicare taxes even though these contributions are pre-tax for federal income tax purposes. Self-employed individuals and sole employee corporation owners pay both employee and employer portions of payroll and income taxes. Social Security tax is proportional as it's based on a flat rate of 6.2% for incomes below $113,000.
Step-by-step explanation:
The employee taxes that must be paid on 401(k) contributions are Social Security (SS) and Medicare (Medi) taxes. 401(k) contributions are pre-tax when it comes to federal income tax, which means that these contributions are taken out of an employee's gross income before it's subject to federal income tax. However, 401(k) contributions are still subject to SS and Medi taxes.
If an individual owns a corporation and is the sole employee, they would have to pay both the employee and employer portions of payroll taxes, which include SS and Medi taxes, as well as any applicable federal income taxes on their earnings. For self-employed individuals with an unincorporated business, similar rules apply in that they must pay self-employment taxes, which again include SS and Medi taxes, known collectively as the Self-Employment Tax; they also pay federal income tax based on their net earnings from self-employment.
The social security tax is a flat rate of 6.2% on employees' incomes earned below $113,000, which makes it a proportional tax. If you're considered an independent contractor, you're responsible for paying both the employee and employer portions of payroll taxes.