The Federal Insurance Contributions Act (FICA) tax is a payroll tax that must be deducted from employees’ paycheck. Employers will then match the amount the employee pays in FICA taxes. As of 2021 and most likely for the future years, the FICA tax is a total of 15.1%. The 12.4% of it is the Social Security tax and the rest 2.9% is the Medicare tax.
Since the employee and the employer will basically split this between each other, both are going to be responsible for their fair shares which is 6.2% for Social Security tax and 1.45% for Medicare. The FICA tax dollars are very important as it funds the Social Security benefits and continuation of Medicare health services. If FICA taxes aren’t processed and paid willfully, the IRS may impose a monetary penalty of up to $10,000 and up to 5 years in prison. In rare cases, it can be even both.
Calculating FICA Tax in 2020
For employers: You must calculate the employee’s FICA tax and match it. With that said, if the employee is going to pay $200 as part of the FICA tax this month, you’re going to pay $200 as well but only for that employee. You must calculate the FICA tax amount for every employee that receives different salary.
Additionally, some of your employees may be subject to the additional Medicare tax. What this means is every employee will pay an additional 0.9% Medicare tax for wages that exceed $200,000. However, you are not going to match this additional tax. As an employer, you are only responsible for matching 1.45% of the Medicare tax. Therefore, your Medicare tax match is going to be 1.45%, not 2.35%—the same as the employee.
For employees: You aren’t required to do anything to pay your FICA tax. It is going to be deducted from your salary automatically when payroll is processed. Your employer should be able to handle everything and you can see the amount paid in FICA tax on your pay stub along with other taxes withheld such as federal or state income tax.