Summary. 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’s a great place to start when you’re establishing your payroll system.
Once you’ve nailed FICA taxes, it’s time to move on to other aspects of payroll, so you’re ready to start hiring.
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. FICA stands for the Federal Insurance Contributions Act and is the U.S. federal payroll tax that employers must withhold from each paycheck.
Read on to learn how to manage FICA for your employees and what your responsibilities are.
Key Takeaways
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FICA stands for Federal Insurance Contributions Act, and FICA taxes are a mandatory withholding from every paycheck.
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FICA taxes are used to fund federal Social Security and Medicare benefits.
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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.
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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.
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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.
What Is FICA?
FICA taxes are withheld from the employee’s paycheck by the employer. The employer is then responsible for paying their own portion of these taxes for each employee. It’s a rather tricky and complicated portion of payroll taxes.
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.
FICA taxes that an individual pays are not held in an account for that person; rather, they’re 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.
How Is FICA Broken Down?
The total due every pay period is 15.3% of an individual’s wages; half of that is paid by the employee, and half is paid by the employer. It doesn’t matter how often your pay periods occur, the amount in the long run is the same 15.3% for everyone.
If you break down FICA taxes, you’ll 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.
For Medicare, 1.45% from the employee and the employer is due with no limit on base pay. 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.
Employee FICA Tax Contributions
As an employer, when you’re calculating the pay of your employee, you will withhold 6.2% of their gross pay for Social Security tax. You’ll also be responsible for withholding 1.45% of their pay for Medicare taxes as a part of FICA.
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’ve reached the $200,000 amount, and then it’s withheld for the remainder of the year.
Employer FICA Tax Contributions
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’s 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.
Additional amounts for the Medicare surtax are only paid by the employee.
Depositing and Reporting Employment Taxes
As an employer, you must deposit and report employment taxes. You’ll 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) to make deposits semi-weekly or monthly.
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.
At the end of the year, you will prepare a Form W-2 Wage and Tax Statement for each employee. You’ll 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.
FICA Tax Employer Responsibilities FAQ
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Is FICA Social Security?
FICA helps fund many different types of Social Security, but it also funds a portion of Medicare. It’s closely related to Social Security, but it’s a more inclusive federal tax and not a benefit like Social Security is.
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Who pays FICA taxes?
Both an employee and an employer are responsible for FICA taxes. It’s the employer’s obligation to withhold these taxes from the employee’s paycheck, and they also need to contribute roughly the same amount as the employee contributes.
A self-employed person will contribute the full FICA amount themselves.
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Does an employer contribute the same amount as an employee for FICA taxes?
Yes, an employer contributes the same amount as an employee for FICA taxes until the employee earns $200,000 in one calendar year. 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.
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.
References
- National Laws
- Workplace Posters
- What You Can And Can't Legally Ask Your Employees
- How To Be An Equal Opportunity Employer
- Equal Opportunity Employer Statement
- Guide To FICA Tax
- FMLA Parental Leave Guide For Employers
- What Is The Work Opportunity Tax Credit?
- Employment Verification Laws
- Employer Taxes For An Employee
- Age Discrimination In The Workplace
- How To Avoid Retaliation In The Workplace
Author
Kristin Kizer
Kristin Kizer is an award-winning writer, television and documentary producer, and content specialist who has worked on a wide variety of written, broadcast, and electronic publications. A former writer/producer for The Discovery Channel, she is now a freelance writer and delighted to be sharing her talents and time with the wonderful Zippia audience.
