During 2018, Jackson Corporation paid Brittany a salary of $110,000. How much is Jackson Corporation's deduction (rounded to the nearest dollar) for its share of FICA taxes paid on Brittany's compensation?

Question

Quizplus · Accepted Answer

FICA taxes consist of Social Security and Medicare taxes. For 2018, the Social Security tax rate is 6.2% and the Medicare tax rate is 1.45%. Thus, the total FICA tax rate is 7.65%. Jackson Corporation would be responsible for paying 50% of the FICA taxes on Brittany's compensation, since the employer's portion of FICA taxes is equal to the employee's portion.

To calculate the deduction for Jackson Corporation's share of FICA taxes paid on Brittany's compensation, we first need to determine her FICA wages, which are the portion of her salary subject to FICA taxes. For Social Security, the wage base limit for 2018 is $128,400, which means that only the first $128,400 of an employee's wages are subject to the Social Security tax.

In this case, since Brittany's salary of $110,000 is less than the wage base limit, all of her wages are subject to both Social Security and Medicare taxes. Therefore, the deduction for Jackson Corporation's share of FICA taxes paid on Brittany's compensation would be:

FICA wages = $110,000
Social Security tax = 6.2% x $110,000 = $6,820
Medicare tax = 1.45% x $110,000 = $1,595
Total FICA tax = $6,820 + $1,595 = $8,415
Employer's share = 50% x $8,415 = $4,207.50

Rounding to the nearest dollar, the deduction for Jackson Corporation's share of FICA taxes paid on Brittany's compensation is $4,208, which corresponds to answer choice B.

During 2018, Jackson Corporation Paid Brittany a Salary of $110,000