CSLB Contractor's Law & Business Practice Exam

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How is FICA tax divided between the employer and employee?

  1. 100% by the employer

  2. 100% by the employee

  3. 75% by the employer and 25% by the employee

  4. 50% by the employer and 50% by the employee

The correct answer is: 50% by the employer and 50% by the employee

FICA tax, which stands for the Federal Insurance Contributions Act tax, is primarily designed to fund Social Security and Medicare programs. The structure of FICA tax requires a shared responsibility between the employer and the employee. Each party contributes an equal portion of the FICA tax. Both the employer and the employee pay a rate that encompasses Social Security and Medicare taxes. As of the last updates, the Social Security portion is typically 6.2% of the employee’s wages, and the Medicare portion is generally 1.45%. This means that the total FICA tax rate is 7.65% for both the employer and the employee, resulting in a 50/50 split of the tax burden. This distribution aligns with the broader principle of tax contributions, where the burden of funding significant social programs is shared, allowing for a more equitable system. This shared contribution structure is crucial to maintaining the solvency of Social Security and Medicare for future generations.