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Social 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. Generally, unless you pay an employee over $200,000 in wages, or 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. In general, the Social Security tax rate for employees is 6.2 percent and the Medicare tax rate is 1.45 percent for 2013. For 2011 and 2012, the employee-share of the OASDI portion of Social Security taxes had been reduced from 6.2 percent to 4.2 percent for wages earned, up to the Social Security taxable wage base, which is adjusted annually for inflation. 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.

Example

Let's assume you have one employee, to whom you pay gross wages of $500 every two weeks. You must withhold from each paycheck $31.00 in Social Security taxes ($500 x 6.2%) and $7.25 in Medicare taxes ($500 x 1.45%). You will also owe equal amounts ($31.00 in Social Security and $7.25 in Medicare) as the employer's portion of the taxes. In other words, each $500 wage payment will create a combined FICA tax liability of $76.50.

As explained above, the Social Security tax is subject to a dollar limit, which is adjusted annually for inflation. For 2013, your obligation to withhold and to pay the Social Security tax for an employee ends once you've paid that employee total wages of $113,700 ($110,100 for 2012).

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.

For tax years beginning after December 31, 2012, you also have to withhold a 0.9% Additional Medicare Tax on an individual’s wages paid in excess of $200,000 in a calendar year. The employer does not begin withholding for this tax until the pay period in which it pays wages in excess of $200,000 to the employee. Unlike the 6.2% and 1.45% percent taxes mentioned above, there is no employer match for 0.9 % Additional Medicare Tax. The 0.9% tax is imposed only on the employee portion and there is no ceiling.