Calculate the Social Security and Medicare tax that would be applied to an annual salary of $125,000. Use $106,800 for maximum taxable earnings. (Soc Sec 6.2%, taxed up to $106,800 and Medicare 1.45%).

Question

a.
Social Security tax: $77,500.00, Medicare tax: $18,125.00
b.
Social Security tax: $7,750.00, Medicare tax: $1,812.50
c.
Social Security tax: $66,216.00, Medicare tax: $18,125.00
d.
Social Security tax: $6,621.60, Medicare tax: $1,812.50

Answer 1

The correct answer is b.
Social Security tax: $7,750.00, Medicare tax: $1,812.50

For Social Security tax, the maximum taxable earnings is $106,800. Therefore, the maximum tax amount is 6.2% of $106,800, which is $6,621.60.
Since the annual salary is $125,000, which exceeds the maximum taxable earnings, the Social Security tax will only be applied to the maximum taxable earnings of $106,800.
The Social Security tax would be $6,621.60.

For Medicare tax, there is no maximum taxable earnings limit. Therefore, the Medicare tax rate of 1.45% will be applied to the entire annual salary of $125,000.
The Medicare tax would be 1.45% of $125,000, which is $1,812.50.

Thus, the total Social Security tax would be $6,621.60 and the total Medicare tax would be $1,812.50.