Every person working in the United States as an employee must have FICA (Federal Insurance Contributions Act) taxes withheld from every paycheck by law. FICA taxes include taxes for both Social Security and Medicare, and it is shared by employees and employers, so half of the tax is deducted from your paychecks when you work as an employee. The other half, an amount equal to the total deducted from employee paychecks, must be paid by your employer. Show
The following provides a step-by-step guide on how to calculate FICA taxes.
Key Takeaways
How FICA Taxes Are CalculatedTo calculate the impact FICA taxes have on your paycheck, you will need to know:
NoteThe portion of your pay that's subject to Social Security and Medicare taxes may be different from your gross pay, so it is vital that you understand what is included and what is not in Social Security wages. Social Security Income CapThis is the maximum amount of your wages or salary that'll be subject to Social Security withholding for that year. Each year the Social Security Administration publishes a maximum Social Security amount. No Social Security withholding is taken from employee pay above this amount. The Additional Medicare TaxThis is the amount at which additional Medicare taxes must be withheld from your pay. The pay amount is different depending on your tax status, such as whether you're single ($200,000) or married filing jointly ($250,000). Income after the applicable threshold incurs an additional 0.9% tax. Self Employment FICA Taxes Self-employed individuals do not have an employer taking on half of their FICA tax payments. In other words, a self-employed individual is personally responsible for double the FICA taxes of an employed individual. FICA Tax Withholding RatesThere are two different rate components:
The total withheld is 7.65% of your gross pay (unless additional Medicare taxes apply). Withholding CalculationsBegin your calculation with your gross pay amount for a given pay period, then calculate the Social Security and Medicare withholding. Calculate Gross PayThe gross pay for a salaried employee is the amount of salary for that period (the annual salary divided by the number of pay periods). NoteFor example, Sally's annual salary is $31,000. She is paid twice a month (24 pay periods in the year), so each gross pay for each paycheck is $31,000 divided by 24, or $1,291.67. The gross pay for an hourly employee is calculated by multiplying the number of hours worked in a pay period times the hourly rate, and including hours for overtime at the overtime rate. NoteFor example, Carlos worked 44 hours during a week at $12.50 an hour:
Determine the amount of pay subject to FICA taxes based on the percentages above. Eliminate any amounts that are not subject to these taxes. Social Security Withholding Multiply the current Social Security tax rate by the gross wages
subject to Social Security taxes. In Sally's example above (assuming all of her wages are included for Social Security purposes), her FICA withholding for each paycheck would be $98.81. NoteIf your income surpasses the Social Security income cap, then double-check to ensure that your employer has stopped withholding Social Security taxes. Medicare WithholdingMultiply the Medicare tax rate by the gross wages subject to Medicare taxes. Check to see if the employee has reached the additional Medicare tax level and increase deductions from the employee's pay. You must also multiply wages by the 0.9% additional Medicare tax if your income surpasses the threshold for your tax situation. Employer's Portion of FICA TaxesThe employer's portion of FICA taxes includes:
FICA Tax OverpaymentIf an employer deducted too much of your pay, either for Social Security or for Medicare tax, the employer will have to follow a few steps to correct the situation. Refund the EmployeeThe employer will pay you back for the excess deduction amount. This amount may be added to your next paycheck or issued as a separate check. File a Corrected 941If the mistake was included in Form 941 (quarterly payroll) report, the employer will need to file a correction form (941-X) to receive a refund. Change the Employee's Payroll RecordThe employer will deduct the overpayment of Social Security taxes from your payroll tax record. The W-2 Form for an employee who earns more than the income cap should show the total amount of pay earned for the year as well as the income cap. Medicare wages will be the same as the total amount of pay. Reporting FICA Tax WithholdingEmployers handle FICA tax reporting. Employers must report FICA tax withholding:
Some employees may want to claim an exemption from federal income tax withholding. This exemption has nothing to do with FICA taxes; you must still withhold FICA tax from each paycheck for all employees. Frequently Asked Questions (FAQs)How do you calculate the Medicare tax rate?Unless the government changes tax law, the Medicare tax rate is always 2.9%. Employed individuals only pay half of this rate (1.45%), and their employers pay the other half. High-income individuals pay an additional 0.9%. What is the Medicare tax limit?The Medicare tax is not limited to an annual income cap, although the Social Security tax is. For 2022, the Social Security tax is limited to the first $147,000 you earn, and for 2023, it's $160,200. Want to read more content like this? Sign up for The Balance’s newsletter for daily insights, analysis, and financial tips, all delivered straight to your inbox every morning! What percentage of tax Should I withhold from Social Security?The current tax rate for social security is 6.2% for the employer and 6.2% for the employee, or 12.4% total.
What is the max Social Security tax for 2022?Contribution and benefit bases, 1937-2023. Is Social Security based on gross or adjusted gross income?When reporting your wages, Social Security requires that you report your gross income — the amount you've earned before any deductions were taken from your paycheck. Social Security looks at gross income to determine whether you're meeting or exceeding substantial gainful activity (SGA).
Is Social Security deducted from gross income?Second, you can deduct half of your Social Security tax on IRS Form 1040. But the deduction must be taken from your gross income in determining your adjusted gross income. It cannot be an itemized deduction and must not be listed on your Schedule C.
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