For wages less than the maximum taxable wage base Social Sec

For wages less than the maximum taxable wage base, Social Security contributions (including those for Medicare) by employees are 7.65% of the employee\'s wages.† (a) Find an equation that expresses the relationship between the wages earned (x) and the Social Security taxes paid (y) by an employee who earns less than the maximum taxable wage base. (b) For each additional dollar that an employee earns, by how much is his or her Social Security contribution increased? (Assume that the employee\'s wages remain less than the maximum taxable wage base.) $ (c) What Social Security contributions will an employee who earns $75,000 (which is less than the maximum taxable wage base) be required to make? $

Solution

a. Assume that Wages earned is x and Social Security Contributions is y.

According to the condition : Social Security Taxes is 7.65% of the employee\'s wages, we can express it as:

y = 7.65% of x

So, y = (7.65/100)x

b. Let n be the no. of additional dollars that the employee earns,

Hence , y = (7.65/100)(x + n)

c. If x = $ 75000 then y = (7.65/100) x 75000

Hence y = 5737.5

So an employee will have to pay $5737.5 as Social Security Contributions.