How to Calculate for FICA Taxes

Professional Payroll Company

The Federal Insurance Contributions Act or FICA is part of the payroll taxes that you should pay the government should you own a business. This tax is used to fund the social security benefits and Medicare benefits of employees which they can use upon retirement or any untoward accidents at work.

FICA taxes are further broken down into two:

  • Social Security
  • Medicare

Social security is a portion of FICA tax and is set at 6.2% for the year 2018 for wages paid up to $128,400. After reaching the wage base limit, you need to stop withholding the Social Security tax rate. If you accidentally withhold Social Security tax past the wage base limit, you need to refund your employees. Social security tax is shared by the employer and the employee. Therefore, total remittance should be 12.4%.

Medicare tax on the other hand has no wage base limit and is set at 1.45%. Instead, it has a thing called Additional Medicare tax applied to employees who earn above $200,000. If an employee is single and is paid over $200,000, you must withhold an additional 0.9% of their wages in addition to the 1.45%. If you have an employee who is married and filing jointly, the additional Medicare tax applies to income over $250,000 while if he is married filing separately, additional Medicare tax applies to income over $125,000. Employers are only required to contribute to the 1.45% standard and not to the Additional Medicare tax.

To further illustrate, let’s say you have an employee who is earning $1,000 per pay check. To know how much social security tax you need to withheld, you must multiply his gross wages to 6.2%. In this case, $1,000 x 6.2%= $62.00. You also need to contribute $62.00 as an employer.

For the Medicare tax portion, you need to withheld $14.50 ($1,000 x 1.45%) from your employee’s pay check and you need to contribute the same amount.

Computing for FICA taxes is quite easy if you follow the rules governing them.