As the great Benjamin Franklin mused, “nothing is certain except death and taxes.” Fortunately, calculating FICA as part of your payroll process is a straightforward formula. One that you can also easily share with your employees, so they can learn how their taxes are calculated. Making sure you are correctly calculating your payroll taxes can be a bit unnerving at best and stressful for most. You want to ensure your company complies with all IRS requirements, and FICA is top on that list.

It’s the law that requires employers to withhold money from employees‘ paychecks to fund Social Security and Medicare. The vast majority of people in the US who earn a wage or salary pay FICA taxes. Also, when calculating your federal income tax, you can claim deductions for things like student loan interest, mortgage interest, state and local taxes, and contributions to a charitable organization. These deductions do not apply when the employer calculates the FICA taxes from your paycheck.

As Kiplinger reported, more than 66 million retirees receiving Social Security checks will see their monthly government payments rise 3.2% next year. The State Unemployment Tax Act (SUTA), quite similar to the FUTA tax, is to fund the state unemployment program that benefits people who lose their job. Employers contribute to this program, and in some states, employees are also required to contribute to this program. The process of wage base limit is a little different for the self-employed as they act as both employee and employer. Keep in mind that if you’re self-employed, you’re both employer and employee—so you’re responsible to pay the full 15.3% for Medicare and Social Security taxes.

In 2023, SSA has changed a couple of things that pertain to paystub generation. The administration has outlined some of the key changes here. These changes are bound to happen every year, and yet UZIO can ensure you are adhered to all the latest compliances and taxes by the federal and state government. Get an expert-led demo of our full-service payroll platform available for all the 50 states in the US.

Wage Cap Jumps to $147,000 for Social Security Payroll Taxes

The FICA tax is a big percentage of your total tax bill, especially for those making under six figures a year. According to the IRS, the employer’s share of the Social Security tax and Medicare is the same as the employee. The current tax rate for social security is 12.4% total or 6.2% flexible budget each for both the employer and the employee. This means that you must withhold 6.2% of the employee wages for the tax while also contributing an additional 6.2% as your share of tax as an employer. If you have multiple jobs, you can claim the Social Security overpayment on Form 1040.

However, the law allows you to take a deduction for 50% of the amount on your tax return. The best tax software for the self-employed can help you navigate these issues. Your Social Security and Medicare taxes add up to 7.65% of the money you make. Your employer will match that amount—and provide the government with total FICA taxes representing 15.3% of your earnings.

Her expertise is in personal finance and investing, and real estate. Workest is here to empower small business with news, information, trends, and community. The nice thing about calculating FICA as part of your payroll processes is that there are very few variables. FICA is the acronym for the Federal Insurance Contributions Act of 1935.

What is the social security wage base?

The federal income tax is a progressive tax that is affected by your tax filing status. This means that the higher your income, the higher the tax rate. The individual tax rates can range from ten to thirty-seven percent. Additionally, employees who receive benefits before they reach the full retirement age (FRA) are always the subject of the retirement earnings test. This means that an income exceeding a certain amount will trigger benefits withholdings until the FRA is reached. This is another threshold that’s modified on an annual basis to reflect changes in economy and national finances.

Managing the New 2023 FICA Limit on Paystubs

The amount withheld will be based on the rates set by the local cities and jurisdictions. To determine if their benefits are taxable, taxpayers should take half of the Social Security money they collected during the year and add it to their other income. Other income includes pensions, wages, interest, dividends and capital gains. The IRS reminds taxpayers receiving Social Security benefits that they may have to pay federal income tax on a portion of those benefits.

What are FICA Taxes?

If you earn more than $147,000, you’ll pay Medicare taxes on the full amount. If you’re self-employed you’re required to pay Social Security and Medicare taxes on your net earnings—your gross income minus deductions. But instead of paying FICA taxes, you’re required to pay “SECA” taxes under the Self-Employed Contributions Act.

Kelley has over two decades of experience advising on and covering education, law, finance, and tax as a corporate attorney and business journalist. On average, according to the SSA, Social Security retirement monthly benefits are expected to grow by more than $50 beginning in January 2024. Learn how to build a strong compensation strategy, pay employees equitably, and truly motivate your workforce. The same salary cap rules apply to SECA, as does the over $200,000 per year additional Medicare tax application. The best way to learn how Ineo’s global mobility software can help your company revolutionize your global mobility program and support your business strategy is to see it in a demo.

How to pay the FICA taxes if you’re self-employed

Therefore, check with your accountant for guidance on your specific situation. The general income/distribution recommended ratio I’ve seen is 50%/50%. Remember, the government wants as much tax dollars from you as possible. If you’re self-employed, you’re really hosed because you are responsible for the entire FICA tax rate of 15.3% (12.4 percent Social Security plus 2.9 percent Medicare). As the senior tax editor at Kiplinger.com, Kelley R. Taylor simplifies federal and state tax information, news, and developments to help empower readers.

This means that you must withhold a 0.9 percent tax from employee wages and do not have to pay the employer’s contribution. The surtax is imposed on employees whose wages exceed $200,000 in a calendar year. The taxable wage cap is subject to an automatic adjustment each year based on increases in the national
average wage index (not the inflation rate), calculated annually by the SSA. The SSA also
posted a fact sheet summarizing the 2022 cost of living adjustments (COLAs). The so-called social security tax applies to employers, employees and all self-employed professionals in the US. If you earn over $160,200 in 2023, then only $160,200 will be subject to FICA tax – not your entire salary.

But there’s an Additional Medicare Tax that high-income individuals must pay. Employers must withhold the additional Medicare tax from wages of employees earning more than $200,000 in a calendar year. Employers have to withhold taxes — including FICA taxes — from employee paychecks because taxes are a pay-as-you-go arrangement in the United States. When you earn money, the IRS wants its cut as soon as possible. A withholding tax is an income tax that a payer (typically an employer) remits on a payee’s behalf (typically an employee).

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