Question

choose true or false. the employer pays an amount to the social security administration equal to the tax paid by the employee. true false

Answer 1

The statement is true: employers do pay an amount equal to the Social Security tax paid by employees. However, the economic burden may shift to the employee through lower wages due to tax incidence. Both parties each pay 6.2% for Social Security and 1.45% for Medicare.

Step-by-step explanation:

True, the employer pays an amount to the Social Security Administration equal to the tax paid by the employee. Payroll taxes for Social Security are imposed at a combined rate of 12.4%, where the employee and employer each contribute 6.2%. However, it is important to note that economists suggest that employers may shift their portion of the tax to employees through lower wages. Hence, tax incidence becomes a critical concept, implying that while the employer physically pays half of the payroll taxes, the economic burden may actually fall on the employee in the form of reduced compensation.

For Medicare taxes, a similar split occurs where both the employee and employer pay 1.45% each, for a total of 2.9%. There is no upper wage ceiling for the Medicare tax. It's also worth mentioning that independent contractors who receive 1099 tax statements are required to pay both the employee and employer portions of these taxes.

Answer 2

True, employers do pay an amount equal to the Social Security tax paid by the employee, but this cost is often passed on to the employees through lower wages.

Step-by-step explanation:

The statement that the employer pays an amount to the Social Security Administration equal to the tax paid by the employee is true. The current Social Security tax rate is 12.4% of wages, with the employee and employer each paying half of this amount, totaling 6.2% each. However, economists note that the employer's share may be indirectly paid by employees in the form of lower wages. In essence, the tax incidence falls on the employee, implying that the economic burden of the employer's contribution might be reflected in the employees' compensation.

For those working in the "gig economy" as independent contractors, they are responsible for paying the entire 12.4% since they must cover both the employee and employer portions of the Social Security tax.