Are the highest paid executives of a firm covered under FICA?

Are the highest paid executives of a firm covered under FICA?

• A. Yes, they are
• B. No, they are excluded
• C. Only if they are salaried
• D. Only if they opt into FICA

Answer: (B)

The correct answer indicates that the highest-paid executives of a firm are not excluded from FICA (Federal Insurance Contributions Act) taxes. However, under certain circumstances, their earnings may be subject to different limits for Social Security taxes. The FICA tax comprises two parts: one for Social Security and another for Medicare. While it is true that all employees, including executives, typically pay Social Security and Medicare taxes on their income, there is an annual income cap for Social Security taxes. For high earners, any income above that cap is not subject to Social Security tax, but they still contribute to Medicare without a cap applicable. When discussing high-level executives, it's important to differentiate their eligibility for FICA contributions from the specific limits on income. Thus, saying they are excluded is incorrect; rather, they are subject to the same FICA tax rules as all employees, albeit with a threshold impacting only the Social Security portion. The other options may suggest misunderstandings about the blanket coverage of all employees under FICA, or create unnecessary conditions, such as only offering FICA coverage to salaried individuals or those who ‘opt in’, which is not applicable in the general context of FICA.

The correct answer indicates that the highest-paid executives of a firm are not excluded from FICA (Federal Insurance Contributions Act) taxes. However, under certain circumstances, their earnings may be subject to different limits for Social Security taxes. The FICA tax comprises two parts: one for Social Security and another for Medicare.

While it is true that all employees, including executives, typically pay Social Security and Medicare taxes on their income, there is an annual income cap for Social Security taxes. For high earners, any income above that cap is not subject to Social Security tax, but they still contribute to Medicare without a cap applicable.

When discussing high-level executives, it's important to differentiate their eligibility for FICA contributions from the specific limits on income. Thus, saying they are excluded is incorrect; rather, they are subject to the same FICA tax rules as all employees, albeit with a threshold impacting only the Social Security portion.

The other options may suggest misunderstandings about the blanket coverage of all employees under FICA, or create unnecessary conditions, such as only offering FICA coverage to salaried individuals or those who ‘opt in’, which is not applicable in the general context of FICA.