How to Calculate FICA Taxes Sage HCM

The right payroll service provider can help you stay focused on your business, customers and employees.‍ Both employers and payroll systems must calculate these withholdings accurately to comply with federal regulations. Compensation subject to FICA also includes salary reduction contributions employees make to 401(k) or comparable plans, even when contributions are not taxable.

Self-employed workers must pay taxes for both Social Security and Medicare, but there are some significant differences. Although income and unemployment taxes are fairly self-explanatory, not everyone knows a lot about FICA taxes. The credit is available whether or not the employee reports those tips on their own tax return.

Employers are required to calculate, withhold, and pay FICA taxes for each employee.

‍Self-employed workers do not pay FICA. The Social Security portion of FICA is a flat 6.2% up to a wage base limit. FICA tax includes Social Security (or OASDI tax) and Medicare. This is also called Old Age, Survivors and Disability Insurance tax, or OASDI tax. Medicare, added in 1965, helps pay for medical coverage for people aged 65 and up.‍

How to Calculate FICA Taxes

You need to match each employee’s FICA tax liability. Employers do not contribute the additional Medicare tax. Payroll software will automatically adjust after an employee reaches the Social Security wage base. And, stop contributing the tax for that employee, too. You also pay a matching 6.2% for each employee. This FICA tax rate goes toward Social Security and Medicare taxes.

What is the Employer’s Responsibility for FICA Payroll Taxes?

• This includes salary, wages, tips, bonuses, commissions, and taxable fringe benefits.
• FICA is a payroll tax that goes toward funding Social Security and Medicare.
• Here is a brief overview of what they are and how to calculate them, for an employee and for the employer.

The FICA tax rate is a fixed percentage applied to all taxable compensation. Employers are legally liable for any unpaid taxes. Employers report FICA taxes on IRS Form 941.

FICA taxes must be paid semi-weekly or monthly. Workers are taxed at a progressive rate based on income level, exemptions, and deductions. Federal income tax funds general government expenses. Both involve tax deductions from an employee’s earnings.

Foreign government employees, some non-resident aliens, and the wages college students make from on-campus jobs are all exempted as well. Similar to income taxes, FICA taxes are also wage-based. So they are referred to as SECA, rather than payroll, taxes.

File

• Typically, if you do not receive a salary like your employees, you must pay self-employment taxes.
• Use our free paycheck calculator to estimate tax withholdings and take-home pay.
• Employers may submit FICA taxes monthly or semi-weekly.
• Some people are “exempt workers,” which means they elect not to have federal income tax withheld from their paychecks.
• If you are a food and beverage employer with tipped employees, you may be eligible to claim the Federal Insurance Contributions Act (FICA) Tip Credit.

Remit the payroll taxes to the appropriate tax agencies. Withhold $235.00 from Employee D’s wages for Medicare and additional Medicare taxes. Read on to learn tax rates for both types of payroll taxes. Again, payroll taxes include Social Security and Medicare taxes. For accurate withholding, learn how to calculate payroll taxes here. You can deduct the employer-equivalent part of your self-employment tax when calculating your adjusted gross income.

These taxes are divided between employers and their employees. Calculating FICA taxes, including Social Security and Medicare can be complicated for employees, employers, and the self-employed. If your gross taxable wages exceed the additional Medicare tax threshold, you also need to pay the additional 0.9% for Medicare tax. Unlike FICA tax, employers and employees do not share the responsibility of self-employment tax.

Why do I have to pay FICA tax?

They received $585 in wages and reported $450 in tips. Multiply the creditable tips by the FICA tax rate (7.65%). Distributed service charges or auto-gratuities are characterized as non-tip wages and are excluded from the tip credit. If you are a food and beverage employer with tipped employees, you may be eligible to claim the Federal Insurance Contributions Act (FICA) Tip Credit. File Schedule SE to determine the amount of self-employment tax you should pay during the tax year.

Income and unemployment: The other employment taxes

The wages for the additional Medicare tax are the same for SECA as they are for FICA. Instead, the employer is responsible for paying the total 15.3% toward Social Security and Medicare taxes. Continue paying this amount until employee wages change. To determine each employee’s FICA tax liability, multiply their gross wages by 7.65%, as seen below. Instead, there is an additional Medicare tax of 0.9% after an employee earns a certain wage.

These taxes are used to fund both Social Security and Medicare. Here is a brief overview of what they are and how to calculate them, for an employee and for the employer. Subtract any tips that aren’t creditable from the total tips. The FICA Tip Credit is a non-refundable, general business tax credit.

If an employer fails to pay or report FICA taxes, the employer’s owner or officers can be held personally liable for the taxes. The Medicare tax allows employees to qualify for Part A Medicare coverage with no additional cost to obtain coverage through Parts B, C, and D when eligible. I don’t have to figure out how to do payroll and taxes because SurePayroll does it for me.” Employers have to withhold taxes — including FICA taxes — from employee paychecks because taxes are a pay-as-you-go arrangement in the United States. The income thresholds for those who have to pay the additional 0.9% Medicare tax will remain the same; they haven’t moved since the tax was introduced in 2013. You can usually deduct half of what you pay in self-employment taxes when you file your tax return.

You how do i calculate the amount of fica tax deductions can use these estimated tax payments to pay your self-employment tax. You calculate SECA the same way as FICA, including additional Medicare tax on income over $200,000. You don’t need to be one in payroll and payroll tax management. You must also report the amount of FICA withheld on the employees’ pay stub and their Form W-2.‍

Created in 1935 to pay Social Security benefits to retirees, FICA now covers retirement benefits, disability benefits and benefits to workers’ survivors. In 2025, only the first $176,100 of your earnings are subject to the Social Security tax, up from $168,600 in 2024. Whether you work for an employer or are self-employed, you’re required to give the government a share of your earnings. Our partners cannot pay us to guarantee favorable reviews.

Increasing Employee Engagement in Higher Education

The $200 expense reimbursement increases the net wages you pay to the employee. The gross taxable wages are $900 (this is the amount you use to calculate the FICA tax on). Many employers use online payroll to handle these calculations. The maximum FICA taxable amount pertains primarily to Social Security taxes. FICA on your paycheck refers to the deductions for Social Security and Medicare taxes.

How to figure the credit

The total employee contribution is 7.65%, and you pay a matching 7.65%. Both you and your employee pay matching contributions. This threshold is adjusted annually to account for inflation and wage trends.

The IRS establishes a wage base limit each year. If you notice discrepancies, it’s important to address them with your employer or HR department promptly. This deduction ensures you contribute toward future benefits like retirement income and healthcare. These mandatory contributions are listed separately on your pay stub, usually under FICA or as separate Social Security and Medicare entries.