Social Security and Medicare are examples of which type of tax?

• A. Corporate taxes
• B. Payroll taxes
• C. Local taxes
• D. Progressive taxes

Answer: (B)

Verified step by step guidance

1. Understand the nature of Social Security and Medicare taxes: these are taxes collected specifically to fund social insurance programs that provide benefits to retirees, disabled individuals, and certain healthcare services.
2. Recall the main types of taxes: corporate taxes are levied on company profits, local taxes are imposed by local governments, and progressive taxes increase in rate as income increases.
3. Identify that Social Security and Medicare taxes are deducted from workers' wages and matched by employers, which is characteristic of payroll taxes.
4. Recognize that payroll taxes are specifically designed to fund social insurance programs like Social Security and Medicare, making them distinct from income or corporate taxes.
5. Conclude that Social Security and Medicare taxes fall under the category of payroll taxes because they are directly tied to employment earnings and fund social insurance benefits.