Comprehensive and Detailed Explanation:

Social Security tax is 6.2% for both the employer and employee, so total liability is 12.4% of Social Security taxable wages.

Calculate Social Security taxable wages:

Gross pay: $32,500.00

Less pre-tax deductions (Health Insurance & 401k do NOT reduce Social Security taxable wages):

Taxable Wages = $32,500.00 - $1,200.00 = $31,300.00

Calculate Social Security tax (12.4% total for employer & employee):

$31,300 12.4% = $3,881.20

Thus, the correct answer is C. $3,881.20.

IRS Publication 15 -- Employer's Tax Guide

Payroll.org -- Social Security and Medicare Tax Rules