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 ​$9.459.45 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 7.657.65 percent of the FICA tax and employers pay 7.657.65 percent of this tax.  ​(Enter your responses rounded to one decimal​ place.)

Answer 1

Given data is The portion of the federal insurance contributions act (FICA) tax paid by employers is = 7.65% the portion paid by employees is = 7.65% workers receive a competative equilibrium wage of is = $10.00/hr per hour. The market wage is = $9.459.45 per/hr then, wage received by workers without FICA tax = $10.00 per hour wage received by workers with FICA tax = $9.55 per hour therefore The tax paid by workers = 10 - 9.55 = $0.45 Incidence of FICA tax = tax paid/wage without tax times 100 = 0.45/10 times 100 \r\n = 45% therefore Incidence = 4.5% the employers as well as employees pay 7.65% tax each for 15.3% tax so for, Total tax of 4.5%, tax paid by employers is = 2.25% the tax paid by employees is = 2.25%