Which of the following taxes has a ceiling on the amount of annual earnings subject to tax?

Which of the following taxes has a ceiling on the amount of annual earnings subject to tax?

a. FICA-Medicare taxes

b. Federal income tax

c. Sales Tax

d. FICA - OASDI taxes

I picked D FICA - OASDI because the % tax is on the first $110,100.

Is this right? What is the answer? Thanks!

Answer

General guidance

Concepts and reason
Tax: It is the amount collected by the government from the general public and business houses to run the country. These amounts are expanded for the welfare of the public. This is collected under different names i.e. income tax, FICA tax, sales tax, import duty, and export duty.

Fundamentals

Payroll taxes: Payroll taxes are levied on the employee and employer for the salaries and allowance expenses related to the company. Taxes are levied by the government i.e. federal government and state government income tax, is to be collected by the employer and pay it to the governments. It includes federal income tax, state income tax, FICA tax (Federal Insurance and contribution Act), federal unemployment tax, and state unemployment tax. Employers also collect any union dues, insurance due, and various other payments which employee have to pay third-party.

Federal Income tax: Federal income is payable the employee for the income earned. It is a paid user a slab rate system.

FICA tax: FICA taxes included O.A.S.D.I (Old-age, survivors, disability insurance act) taxes and Medicare taxes. FICA-OASDI tax and Medicare tax is payable by the employer and employee both. FICA-OASDI tax is payable on a certain level of income which means is this tax amount is calculated based on the level of the income declared by the government beyond that level this tax is not levied on the surplus amount. The maximum level of salary income is fixed by government time-to-time. The tax rate for FICA-OASDI is 6.20% for employee and employer both. FICA-Medicare tax is computed at the rate of 1.45% on total salary income, it does not have a maximum limit.

Sales tax: It is the tax paid or collected on the sale of the merchandise. This collected tax is on behalf of the government later which is paid to the government. The amount collected on the name of the sales tax remains a liability for the company until it is paid to the government. It is recorded as sales tax payable in the financial statement of the company. This tax levy does not have any maximum or minimum limit, it is levied on the total sales value.

Taxes paid by the employees are federal income tax, state income tax, and FICA tax (Federal Insurance and contribution Act).

Taxes paid by the employers are FICA tax (Federal Insurance and contribution Act), federal unemployment tax, sales tax, and state unemployment tax.

Step-by-step

Step 1 of 2

Determine the payroll tax-related liabilities of employee and employer:

Federal and state income tax, FICA contribution, and Medicare tax contribution are the liability of the employee.

Federal and state income tax (on their own income), FICA contribution, Medicare tax contribution, sales tax is the liability of the employer.

The tax liability of employees is restricted to the federal and state income taxes and their contribution towards FICA tax and Medicare tax. Federal and state income tax (on their own income), FICA contribution, Medicare tax contribution, sales tax is the liability of the employer. These taxes are levied and collected by the federal government and the state government.

Step 2 of 2

Determine the tax which has a ceiling limit:

FICA-Medicare taxes, federal income tax, and sales tax do not have any ceiling limit, it is applied on the whole amount under consideration.

FICA-OASDI has a ceiling limit on the amount of total yearly income for the tax liability. This ceiling amount may be revised every year by the government.

Therefore, the FICA-OASDI has a ceiling on the amount of annual earnings subject to tax.

The FICA-OASDI tax has a ceiling on the amount of annual earnings subject to tax.


FICA-Medicare tax is applied to the whole amount of payroll expense. Federal income tax is applicable to the whole payroll under the slab system. Sales tax is payable on the whole value of sales.

FICA-OASDI tax has a ceiling limit on the amount of total yearly income for the tax liability. This ceiling amount may be revised every year by the government. The rate for FICA-OASDI tax is 6.20% on the annual income which is under the ceiling fixed by the government. The income above the ceiling is not liable for the FICA-OASDI tax. This tax is paid by the employer and employee both.

Answer

The FICA-OASDI tax has a ceiling on the amount of annual earnings subject to tax.

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