The portion of the Federal Insurance Contributions Act (FICA) tax paid by employ

Question

The portion of the Federal Insurance Contributions Act (FICA) tax paid by employers is 7 65 percent and the portion paid by employees is 7 65 percent (for a tol of 153 percent Suppose that absent FICA taxes, workers receive a competitive equiibrium wage of $10 00 per hour and that with FICA taxes divided equally between employers and employees, the market wage is $9 52 per hour what is the incidence of the FICA tax? For sn picity ass me employers pay SO 765 ? F?CA taxes and workers pay SO 765 r FICA taxes tor a ota, oss, ple, workers pay?percent of the FI Atax and em yers pay?percent ott En oroar responses on dtoone dee na,pace inth sexa stax

Explanation / Answer

Tax Incidence: Tax is shared equally between employer and employee when the price elasticity of demand equals price elasticity of supply.

In this example, workers pay $0.48 or 4.8 percent of the FICA tax and employers pay 4.8 percent of this tax

=10-9.52 = 0.48

=(0.48/10)*100 = 4.8 percent

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