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 total of 15.3 percent). Suppose that absent FICA taxes, workers receive a competitive equilibrium wage of $10.00 per hour and that with FICA taxes divided equally between employers and employees, the market wage is $9.56 per hour. What is the incidence of the FICA tax? For simplicity, assume employers pay $0.765 in FICA taxes and workers pay $0.765 in FICA taxes for a total of $1.53. In this example, workers pay percent of the FICA tax and employers pay percent of this tax. (Enter your responses rounded to one decimal place.)

Explanation / Answer

In absence of FICA taxes equilibrium wages are $10/ hour and in presence of FICA taxes wages are $9.56 that is total taxes paid are $0.44

This paid taxes are divided between Employee and Employer then contribution each is $0.22

Hence workers pay 0.22/10=2.2% and workers pay 0.22/10=2.2% of this tax

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