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Controlling Your Taxes Your Payroll Tax Obligations Which Payroll Taxes Apply? Social Security and Medicare (FICA) Taxes
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PrintSocial Security and Medicare (FICA) Taxes
The Federal Insurance Contributions Act (FICA) is a federal law that requires you to withhold two separate taxes from the wages you pay your employees: a social security tax and a Medicare tax. The law also requires you to pay the employer's portion of these taxes. Unless you have employees who receive tips, the employer's portion will be the same as the amount that you're required to withhold from your employees' wages.
Each of the FICA taxes is imposed at a single flat rate. Currently, the social security tax rate for employees is 6.2 percent and the Medicare tax rate is 1.45 percent. The taxes are unaffected by the number of withholding exemptions an employee may have claimed for income tax withholding purposes. You simply multiply an employee's gross wage payment by the applicable tax rate to determine how much you must withhold and how much you must pay.
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The social security tax is subject to a dollar limit, which is adjusted annually for inflation. For 2009, your obligation to withhold and to pay the social security tax for an employee ends once you've paid that employee total wages of $106,800 ($102,000 in 2008).
However, there is no ceiling on the Medicare tax. You must continue to withhold and to pay the Medicare tax regardless of how much you pay an employee.
