INTRODUCTION TO ACCOUNTING-Unit 3, Question # 1 – Essay Example
Question What is required of an employer by the Federal Insurance Contributions Act? The Federal Insurance Contributions Act was instituted in the United States of America with an aim of funding Medicare and Social Security (Slater, 2007). The federal programs are meant to benefit the disabled, retirees and the offspring of dead workers. While social security benefits survivors, the aged and the disabled, Medicare offers hospital insurance benefits. Commonly referred to as old-age, survivors, and disability insurance (OASDI), the social security program involves both employees and employers much like Medicare. In other words, both the employer and the employee contribute toward the employee’s Social Security (Slater, 2007). FICA tax is regressive on income considering that it has no personal exemption or standard deductions.
The Federal Insurance Contributions Act demands that employers remit a given percentage of every employee’s gross earning to the federal government in tax. The employer similarly is required to remit for the benefit of every employee a similar amount in corporate tax for their Social security. In other words, the employee’s share of Social Security tax is set at 6.2% up to a specified limit in cash (Slater, 2007). Similarly, the employer’s portion of tax for the benefit of the employee is set at 6.2%. Yet again, the employee’s portion of Medicare tax is set at 1.45% without limit (Slater, 2007). The employer’s portion of Medicare tax is equal to the amount paid by the employee. What this means is that in total, The employer remits to the federal government 15.3% of the employee’s gross earning in tax, half of this being the employer’s contribution.
Generally, the employer is required by the act to withhold and remit the taxes to the federal government each month. FICA taxes are paid regardless of an employee’s age and irrespective of whether the employee receives Social Security benefits. When an employer fails to withhold the tax from an employee’s payroll, he/she becomes liable for the tax uncollected.
Slater J. (2007) College Accounting: A practical Approach, 10th Edition. New Jersey. Prentice Hall.