Which payroll tax does not have a limit?

Which payroll tax does not have a limit?

• A. FICA Social Security tax
• B. FUTA unemployment tax
• C. Federal Income Tax (FIT)
• D. Medicare tax

Answer: (C)

Wage-base limits are used to cap how much of your earnings are subject to certain payroll taxes. The Social Security portion of FICA is capped, so earnings above the limit aren’t taxed for Social Security. The FUTA tax also applies only to wages up to a set amount. Medicare tax, on the other hand, does not have a cap on the wage base (though there is an Additional Medicare Tax for high earners). Federal income tax is calculated on your total taxable income using progressive brackets, so there isn’t a wage-base cap limiting how much tax you can owe as income rises. In this context, the federal income tax is the tax that does not have a limit.

Wage-base limits are used to cap how much of your earnings are subject to certain payroll taxes. The Social Security portion of FICA is capped, so earnings above the limit aren’t taxed for Social Security. The FUTA tax also applies only to wages up to a set amount. Medicare tax, on the other hand, does not have a cap on the wage base (though there is an Additional Medicare Tax for high earners). Federal income tax is calculated on your total taxable income using progressive brackets, so there isn’t a wage-base cap limiting how much tax you can owe as income rises. In this context, the federal income tax is the tax that does not have a limit.