Contractor License Practice Exam

Who pays Social Security and Medicare taxes?

1. Only the employer

2. Only the employee

3. Both the employer and the employee

4. Neither party

The correct answer is: Both the employer and the employee

Social Security and Medicare taxes, collectively referred to as FICA (Federal Insurance Contributions Act) taxes, are designed to fund the Social Security and Medicare programs. These taxes are required to be paid by both the employer and the employee. When an employee earns wages, a portion is deducted from their paycheck to cover their share of Social Security and Medicare taxes. Simultaneously, the employer is required to match that amount by contributing an equivalent percentage of the employee’s earnings for these taxes. This shared responsibility ensures that both parties contribute to the funding of essential social programs, thereby supporting retirees, disabled individuals, and eligible healthcare recipients. Understanding this structure emphasizes the collaborative role that both employers and employees play in the funding of these federal benefits, highlighting the importance of both contributions in sustaining these critical programs.