Table of Contents
The FICA tax refers to the Federal Insurance Contributions Act Tax and is paid by employers on certain wages. This article will provide an overview of what the FICA tax is, how it’s calculated and why it matters for you.
FICA stands for Federal Insurance Contributions Act, which is a law that determines how much of your income taxes are taken out and put into Social Security. The “fica calculator” will help you figure out what percentage of your income is taken out in the form of FICA tax.
FICA (Federal Insurance Payments Act) is a federal payroll tax on workers’ paychecks that funds the Social Security and Medicare programs, as well as compulsory contributions from employers. Employees and employers are both liable for paying Social Security at 6.2 percent of gross wages and Medicare at 1.45 percent of gross earnings. There is no way to opt out of these deductions from an employee’s gross salary.
Consider utilizing payroll software like Gusto if you’d rather not calculate and pay FICA tax manually. Gusto calculates FICA and all other payroll taxes for you automatically, allowing you to concentrate on operating your company. To discover whether it’s right for you, sign up for a free trial.
Gusto is a great place to visit.
When to Pay FICA Taxes and at What Rate
The whole tax burden of Social Security and Medicare levies is shared by both employees and employers. The employer pays half of the FICA tax owing, while the other half is deducted from an employee’s salary.
- The employer pays the remaining 6.2 percent of the Social Security Tax (12.4 percent total) that is withheld from employee paychecks. For 2021, the tax will be paid on salaries up to $142,800.
- Employees’ part of the Medicare tax (2.9 percent total) is taken from their paychecks, while the employer pays the remaining 1.45 percent. Medicare taxes have no income limit.
It is your obligation as an employer to timely submit both the employee portion and your part of FICA tax. Because correctly deducting FICA is critical, it’s essential that you grasp the procedure when preparing your payroll.
Form 941 is used to record and submit all payroll taxes paid by the employer, as well as taxes withheld from employee paychecks, such as the employer FICA tax. Let’s look at how to figure out how much FICA tax you owe, how to make payments, and the deadlines you must meet, as well as penalties for not paying or paying late.
Employers are required to submit a variety of forms on a quarterly/annual basis, including Form 941. Make sure you’re in compliance with our payroll forms guide.
How to Work Out How Much FICA Tax You Owe
Because both employers and workers must contribute equally to Social Security and Medicare taxes, an employee’s paycheck is withheld 7.65 percent (6.2 percent + 1.45 percent), and the employer pays 7.65 percent of earnings given to employees.
Wage Limits for Social Security and FICA
For 2021, both the employer and the employee must pay Social Security taxes on employee salaries up to a maximum of $142,800. This implies that when an employee earns $142,800, no extra Social Security taxes are collected from their salary for the rest of the year. You would also have no extra Social Security responsibility for the rest of the year since your tax amount must equal the employee’s.
Wage Limits for Social Security in 2019 and 2021 (Summary)
FICA (Federal Insurance Contributions Act) Tax Example
Assume that an employee is paid $2,000 every pay period. The Social Security tax would be calculated as follows:
$124 = $2,000 x 0.062
In this case, you would subtract $124 from this employee’s gross salary each pay period for Social Security tax. Because the employer tax must match the employee Social Security tax, your employer share would be $124 as well. As a result, for this employee (for this pay period), the total Social Security tax payment you would make to the IRS would be $248.
Wage Limits for Medicare FICA Tax
When it comes to Medicare taxes, there is no pay ceiling. This implies that no matter how much an employee makes, he or she must pay Medicare taxes on the whole amount. Employers will be required to match the employee’s contribution in the same way they do with Social Security taxes.
Example of a Medicare Tax
Let’s compute the Medicare tax for the same employee who made $2,000 every pay period:
$2,000 divided by 0.0145 is $29
In this case, the Medicare tax would be deducted from the employee’s gross salary of $29 in this example. Because the employer tax must be equivalent to the employee Medicare tax, your employer share would be $29. As a result, for this pay period, the total Medicare tax payment you would send to the IRS for this employee would be $58.
How to Find Out When Your FICA Taxes Are Due
Due dates for FICA taxes are determined by your “lookback period.” You’ll have to pay FICA tax monthly or semiweekly, depending on your overall FICA tax burden during this time. If your tax burden during your most recent lookback period is less than $50,000, you pay monthly; if it is more than $50,000, you pay semiweekly.
How to Find Out How Long You Have to Pay FICA Taxes
Let’s pretend it’s January 1, 2021, and you need to figure out when you’ll have to submit your tax payments in the future. You’ll have to pay either monthly for employer FICA tax outstanding from the previous month or semiweekly for FICA tax owed from the previous two weeks.
The following are the three stages to determining your lookback period:
1. Decide on a lookback period.
The preceding year’s lookback period runs from July 1 to June 30. Your lookback period for 2021 would be July 1, 2019, to June 30, 2020.
2. Obtain copies of the Form 941 that has been filed
This includes any Form 941s submitted during the lookback period. The 941 tax forms for the following quarters would be included in this:
- Quarter 3 of 2019 (July 1 to September 30)
- Quarter 4 (October 1 – December 31, 2019)
- The first quarter of 2020 (from January 1 to March 31, 2020)
- Second Quarter 2020 (April 1–June 30, 2020)
3. On Line 10 of each Form 941, add up the tax liability.
You must deposit your taxes on a monthly basis if your total tax due for all four quarters is $50,000 or less. Taxes must be paid by the 15th of the next month. If your total tax burden is more than $50,000, however, you must deposit your tax payments semiweekly. The due dates for semiweekly tax payments are determined by the day of the week on which your paycheck was received.
If your total taxes (on line 10) for the current quarter or the previous quarter are less than $2,500, this rule does not apply. You are not required to provide a deposit in this circumstance. Alternatively, you may mail your payment with your Form 941.
If you’re a new employer, you’ll be regarded a monthly depositor by default since your tax obligation for the lookback period will be nil.
The following is a summary table of each depositor type, along with the tax payment due dates:
FICA Tax Payments: Depositor Types and Due Dates
IMPORTANT NOTE: If you are a monthly schedule depositor and you accrue a $100,000 tax obligation on any given day, you will become a semiweekly schedule depositor the next day and will stay so for the remainder of the calendar year and the following calendar year. See IRS Publication 15’s $100,000 Next-Day Deposit section for further details.
How to Pay Your FICA Taxes
If you deposit money on a monthly or semiweekly basis, you must use the Electronic Federal Tax Payment System to make your payments (EFTPS). Payment by mail is not an acceptable method of payment.
Income taxes withheld from all employee paychecks, as well as your and the employee’s share of Social Security and Medicare taxes, should all be included in the payments you submit.
You’ll need a Federal Employer Identification Number to utilize EFTPS (aka EIN or FEIN). The IRS will provide you an EIN if you apply for one. Read our page on employer identification numbers to learn more about EIN numbers.
You may send your payment with your Form 941 or submit it via the EFTPS if you are not obligated to make payments throughout the quarter.
Late Payment Penalties under FICA
You might face a penalty of 2% to 15% if you don’t make your payments on time or when you’re supposed to, or if your deposit is for less than the minimum amount.
The penalties that you may be compelled to pay dependent on the number of days your payment is late are summarized in the table below, which is derived from IRS Publication 15.
Penalties for Failure to Pay FICA Taxes on Time
There is a one-time penalty for late FICA tax payments, but interest will accumulate each day until the due tax payments are completed.
Conclusion
FICA taxes are federal payroll taxes that both the employee and the employer must pay, and employers are accountable if the amounts are not sent on time. They include both Social Security and Medicare, resulting in a combined rate of 7.65% for both workers and employers.
Consider utilizing a payroll service like Gusto to avoid having to manually compute and send FICA tax. It calculates, withholds, and pays FICA tax on your behalf. Today is the last day to sign up for a free trial.
Gusto is a great place to visit.
FICA stands for Federal Insurance Contributions Act. It is a tax that is used to fund Social Security and Medicare. The FICA tax rate is 7.65% of your income up to the first $127,200 of income earned in a year. Reference: who pays fica taxes.
Related Tags
- what does fica stand for
- how to calculate fica tax 2021
- what is fica tax
- what is fica tax on my paycheck
- fica tax rate 2021
