CSLB Contractor's Law & Business Practice Exam

Which tax is generally split evenly between the employer and employee?

1. FUTA

2. FICA

3. California sales tax

4. Income tax

The correct answer is: FICA

FICA, which stands for the Federal Insurance Contributions Act, is the correct answer because it encompasses the Social Security and Medicare taxes that are levied on an employee's earnings. Both employers and employees contribute equally to these taxes; the employee’s portion is withheld from their paycheck while the employer matches that amount. This equitable split is an essential feature of FICA, as it supports the funding of social security and Medicare benefits for current and future retirees. In contrast, other taxes mentioned do not follow this split structure. For example, FUTA (Federal Unemployment Tax Act) is paid solely by the employer and does not involve a contribution from the employee. California sales tax is a consumption tax that is not directly tied to employment and is collected from consumers rather than divided between employers and employees. Income tax is typically withheld from an employee's wages, but it is primarily paid by the employee, with employers fulfilling the role of withholding it rather than matching it.