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\nSummary.<\/b> As an employer, there are many responsibilities you have that are determined by the government. Federal payroll tax withholdings are one of those responsibilities, and it\u2019s a great place to start when you\u2019re establishing your payroll system.<\/p>\n<\/blockquote>\n<\/div>\n
Once you\u2019ve nailed FICA taxes, it\u2019s time to move on to other aspects of payroll, so you\u2019re ready to start hiring.<\/p>\n
As an employer with employees, there are some legal responsibilities that you have to uphold. One of those responsibilities that are most important and can be most complicated is taxes. One tax that every employer must understand is FICA<\/a>. FICA stands for the Federal Insurance Contributions Act and is the U.S. federal payroll tax that employers must withhold from each paycheck.<\/p>\n
Read on to learn how to manage FICA for your employees and what your responsibilities are.<\/p>\n
Key Takeaways<\/b><\/p>\n
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FICA stands for Federal Insurance Contributions Act, and FICA taxes are a mandatory withholding from every paycheck.<\/p>\n<\/li>\n
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FICA taxes are used to fund federal Social Security and Medicare benefits.<\/p>\n<\/li>\n
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Employers are required to match the base FICA amounts that an employee contributes, which add up to 15.3% of their gross pay.<\/p>\n<\/li>\n
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If an employee earns more than $200,000, they may have to pay an additional 0.9% to Medicare. The employer does not have to match this amount.<\/p>\n<\/li>\n
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Employers are required to report and pay FICA taxes either bi-weekly or monthly, and they must report this amount quarterly.<\/p>\n<\/li>\n<\/ul>\n
What Is FICA?<\/h2>\n
FICA taxes are withheld from the employee\u2019s paycheck by the employer. The employer is then responsible for paying their own portion of these taxes for each employee<\/a>. It\u2019s a rather tricky and complicated portion of payroll taxes.<\/p>\n
The money withheld for FICA taxes is designated to support Social Security and Medicare. These are federal benefits that are available for retirees, the disabled, and children. To fund these programs, the U.S. government uses contributions from payroll taxes.<\/p>\n
FICA taxes that an individual pays are not held in an account for that person; rather, they\u2019re used to support the program today. When the individual retires and goes on Medicare, then the workforce of that day will be funding their medical benefits<\/a>.<\/p>\n
\n\n\nGet Started Hiring Now<\/div>\n<\/div>\n\nPost A Job<\/a>\n<\/div>\n<\/div>\n<\/div>\nHow Is FICA Broken Down?<\/h2>\n
The total due every pay period is 15.3% of an individual\u2019s wages; half of that is paid by the employee, and half is paid by the employer. It doesn\u2019t matter how often your pay periods occur, the amount in the long run is the same 15.3% for everyone.<\/p>\n
If you break down FICA taxes, you\u2019ll see that 6.2% of the taxes paid by both the employee and the employer is earmarked for Social Security up to a wage base limit of $160,200.<\/p>\n
For Medicare, 1.45% from the employee and the employer is due with no limit on base pay<\/a>. If the employee earns more than $200,000, there may be an additional 0.9% taken for Medicare from the employee, and the employer does not have to match this additional amount.<\/p>\n
Employee FICA Tax Contributions<\/h2>\n
As an employer, when you\u2019re calculating the pay of your employee, you will withhold 6.2% of their gross pay for Social Security tax. You\u2019ll also be responsible for withholding 1.45% of their pay for Medicare taxes as a part of FICA.<\/p>\n
If your employee makes more than $200,000 a year, you will withhold an additional 0.9% from their wages for the Additional Medicare Tax. This amount is only withheld after they\u2019ve reached the $200,000 amount, and then it\u2019s withheld for the remainder of the year.<\/p>\n
\n\n\nGet Started Hiring Now<\/div>\n<\/div>\n\nPost A Job<\/a>\n<\/div>\n<\/div>\n<\/div>\nEmployer FICA Tax Contributions<\/h2>\n
The employer is also required to make contributions on behalf of the employee in regard to their FICA taxes. These taxes are roughly equal to the employee\u2019s contribution amounts. This means that you will also be paying 6.2% of their gross pay for Social Security tax and 1.45% of their pay for Medicare taxes.<\/p>\n
Additional amounts for the Medicare surtax are only paid by the employee.<\/p>\n
Depositing and Reporting Employment Taxes<\/h2>\n
As an employer, you must deposit and report employment taxes. You\u2019ll have a specific schedule that you will use to determine when you need to deposit those amounts. Most employers use the Electronic Federal Tax Payments System (EFTPS)<\/a> to make deposits semi-weekly or monthly.<\/p>\n
Each quarter, employers send a quarterly payroll tax report on Form 941 to the IRS, breaking down the amount deducted from employee paychecks and the amount due from the employer in the quarter. This is due on the last day of the month after each quarter’s end, which gives you roughly a month to comply.<\/p>\n
At the end of the year, you will prepare a Form W-2<\/a> Wage and Tax Statement for each employee. You\u2019ll use Form W-3 Transmittal of Wage and Tax Statements to send those W-2 forms to the Social Security Administration so they can account for your contributions.<\/p>\n
\n\n\nGet Started Hiring Now<\/div>\n<\/div>\n\nPost A Job<\/a>\n<\/div>\n<\/div>\n<\/div>\nFICA Tax Employer Responsibilities FAQ<\/h2>\n
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Is FICA Social Security?<\/b><\/p>\n
FICA helps fund many different types of Social Security, but it also funds a portion of Medicare.<\/b> It\u2019s closely related to Social Security, but it\u2019s a more inclusive federal tax and not a benefit like Social Security is.<\/p>\n<\/li>\n
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Who pays FICA taxes?<\/b><\/p>\n
Both an employee and an employer are responsible for FICA taxes.<\/b> It\u2019s the employer\u2019s obligation to withhold these taxes from the employee\u2019s paycheck<\/a>, and they also need to contribute roughly the same amount as the employee contributes.<\/p>\n
A self-employed person will contribute the full FICA amount themselves.<\/p>\n<\/li>\n
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Does an employer contribute the same amount as an employee for FICA taxes?<\/b><\/p>\n
Yes, an employer contributes the same amount as an employee for FICA taxes until the employee earns $200,000 in one calendar year.<\/b> Once an employee hits the $200,000 amount, they are responsible for an additional 0.9% tax which goes toward Medicare. The employer does not have to match this amount.<\/p>\n
This means that if the employee does not earn $200,000 in the calendar year or up until the employee earns that amount, the employer will contribute the same amount as the employee toward FICA.<\/p>\n<\/li>\n<\/ol>\n
References<\/h2>\n