Utah Contractor Practice Exam

Who pays the Federal Insurance Contributions Act (FICA) taxes?

1. 50% employer and 50% employee

2. IRS

3. The employee

4. The employer

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

FICA taxes, which fund Social Security and Medicare, are shared equally between the employer and the employee. This means that both parties contribute a percentage of the employee's wages toward these federal programs. The employer withholds the employee's portion of FICA from their paycheck and matches that amount, remitting the total to the IRS. This structure ensures that both the employer and employee participate in funding essential social insurance programs, which provide benefits to retirees, disabled individuals, and certain dependents. In contrast, the IRS does not pay FICA taxes; it is the agency responsible for collecting them. The employee pays a portion of the FICA tax directly from their wages, but that does not reflect the full obligation since the employer pays an equal amount. Similarly, the employer is also liable for the same contributions, but again, this does not account for the employee's participation in the tax structure. Thus, the split responsibility for FICA taxes rests firmly with both the employee and the employer, highlighting the collaborative nature of funding social insurance.