AD Banker Comprehensive Practice Exam

Which statement about the tax treatment of Social Security is NOT true?

1. Employees and employers pay equal taxes for Social Security

2. Self-employed individuals pay both shares of Social Security taxes

3. Employee payroll deductions for Social Security are tax deductible

4. Employers can deduct their contributions for employees

The correct answer is: Employee payroll deductions for Social Security are tax deductible

The chosen statement regarding employee payroll deductions for Social Security being tax deductible is not true. In the context of tax treatment, while employees contribute to Social Security through payroll deductions, these contributions are made with after-tax income and are not deductible from taxable income. This means that the amount withheld from an employee's paycheck for Social Security does not reduce the individual's taxable income for federal income tax purposes. The other statements accurately reflect the tax treatment of Social Security. Employees and employers contribute equally to the Social Security system, with each paying a specific percentage of an employee's wages. Self-employed individuals face a different scenario, as they are responsible for both the employee and employer portions of Social Security taxes, which is often referred to as the self-employment tax. Lastly, employers can indeed deduct their contributions to Social Security as a business expense, which helps maintain the overall legality and structure of tax benefits associated with payroll contributions.