FICA Taxes
FICA Taxes
FICA taxes refer to the Federal Insurance Contributions Act taxes, which are payroll taxes imposed on both employees and employers to fund Social Security and Medicare programs. These taxes are critical for providing retirement benefits, disability income, and health care for the elderly.
Components
FICA taxes consist of two main parts:
- Social Security Tax: This tax is 6.2% of an employee’s wages up to a certain income limit.
- Medicare Tax: This tax is 1.45% of all wages, with no income cap.
Examples
If an employee earns $50,000 in a year:
- Social Security Tax: $50,000 * 6.2% = $3,100
- Medicare Tax: $50,000 * 1.45% = $725
Total FICA Tax for the employee: $3,100 + $725 = $3,825
Cases
In cases where an employee earns more than the Social Security wage base limit (e.g., $160,200 for 2023), the Social Security tax will only apply to the first $160,200 of earnings. For example, if an employee earns $200,000:
- Social Security Tax: $160,200 * 6.2% = $9,932.40
- Medicare Tax: $200,000 * 1.45% = $2,900
Total FICA Tax for the employee in this case: $9,932.40 + $2,900 = $12,832.40