Every person working in the United States as an employee must have FICA (Federal Insurance Contributions Act) taxes withheld from every paycheck by law. FICA taxes include taxes for both Social Security and Medicare, and it is shared by employees and employers, so half of the tax is deducted from your paychecks when you work as an employee. The other half, an amount equal to the total deducted from employee paychecks, must be paid by your employer. Show
The following provides a step-by-step guide on how to calculate FICA taxes.
Key Takeaways
How FICA Taxes Are CalculatedTo calculate the impact FICA taxes have on your paycheck, you will need to know:
NoteThe portion of your pay that's subject to Social Security and Medicare taxes may be different from your gross pay, so it is vital that you understand what is included and what is not in Social Security wages. Social Security Income CapThis is the maximum amount of your wages or salary that'll be subject to Social Security withholding for that year. Each year the Social Security Administration publishes a maximum Social Security amount. No Social Security withholding is taken from employee pay above this amount. The Additional Medicare TaxThis is the amount at which additional Medicare taxes must be withheld from your pay. The pay amount is different depending on your tax status, such as whether you're single ($200,000) or married filing jointly ($250,000). Income after the applicable threshold incurs an additional 0.9% tax. Self Employment FICA Taxes Self-employed individuals do not have an employer taking on half of their FICA tax payments. In other words, a self-employed individual is personally responsible for double the FICA taxes of an employed individual. FICA Tax Withholding RatesThere are two different rate components:
The total withheld is 7.65% of your gross pay (unless additional Medicare taxes apply). Withholding CalculationsBegin your calculation with your gross pay amount for a given pay period, then calculate the Social Security and Medicare withholding. Calculate Gross PayThe gross pay for a salaried employee is the amount of salary for that period (the annual salary divided by the number of pay periods). NoteFor example, Sally's annual salary is $31,000. She is paid twice a month (24 pay periods in the year), so each gross pay for each paycheck is $31,000 divided by 24, or $1,291.67. The gross pay for an hourly employee is calculated by multiplying the number of hours worked in a pay period times the hourly rate, and including hours for overtime at the overtime rate. NoteFor example, Carlos worked 44 hours during a week at $12.50 an hour:
Determine the amount of pay subject to FICA taxes based on the percentages above. Eliminate any amounts that are not subject to these taxes. Social Security Withholding Multiply the current Social Security tax rate by the gross wages
subject to Social Security taxes. In Sally's example above (assuming all of her wages are included for Social Security purposes), her FICA withholding for each paycheck would be $98.81. NoteIf your income surpasses the Social Security income cap, then double-check to ensure that your employer has stopped withholding Social Security taxes. Medicare WithholdingMultiply the Medicare tax rate by the gross wages subject to Medicare taxes. Check to see if the employee has reached the additional Medicare tax level and increase deductions from the employee's pay. You must also multiply wages by the 0.9% additional Medicare tax if your income surpasses the threshold for your tax situation. Employer's Portion of FICA TaxesThe employer's portion of FICA taxes includes:
FICA Tax OverpaymentIf an employer deducted too much of your pay, either for Social Security or for Medicare tax, the employer will have to follow a few steps to correct the situation. Refund the EmployeeThe employer will pay you back for the excess deduction amount. This amount may be added to your next paycheck or issued as a separate check. File a Corrected 941If the mistake was included in Form 941 (quarterly payroll) report, the employer will need to file a correction form (941-X) to receive a refund. Change the Employee's Payroll RecordThe employer will deduct the overpayment of Social Security taxes from your payroll tax record. The W-2 Form for an employee who earns more than the income cap should show the total amount of pay earned for the year as well as the income cap. Medicare wages will be the same as the total amount of pay. Reporting FICA Tax WithholdingEmployers handle FICA tax reporting. Employers must report FICA tax withholding:
Some employees may want to claim an exemption from federal income tax withholding. This exemption has nothing to do with FICA taxes; you must still withhold FICA tax from each paycheck for all employees. Frequently Asked Questions (FAQs)How do you calculate the Medicare tax rate?Unless the government changes tax law, the Medicare tax rate is always 2.9%. Employed individuals only pay half of this rate (1.45%), and their employers pay the other half. High-income individuals pay an additional 0.9%. What is the Medicare tax limit?The Medicare tax is not limited to an annual income cap, although the Social Security tax is. For 2022, the Social Security tax is limited to the first $147,000 you earn, and for 2023, it's $160,200. Want to read more content like this? Sign up for The Balance’s newsletter for daily insights, analysis, and financial tips, all delivered straight to your inbox every morning! How do I calculate Medicare deductions from my paycheck?The Medicare withholding rate is gross pay times 1.45%, although high-income individuals will pay an additional 0.9%. The employer also pays 1.45% with no limit, but they don't pay any additional tax.
Is Medicare taken out of every paycheck?When are Medicare taxes paid? The Medicare tax is an automatic payroll deduction that your employer collects from every paycheck you receive. The tax is applied to regular earnings, tips, and bonuses. The tax is collected from all employees regardless of their age.
What is the Medicare rate for 2022?In 2022, the premium is either $274 or $499 each month ($278 or $506 in 2023), depending on how long you or your spouse worked and paid Medicare taxes. You also have to sign up for Part B to buy Part A. If you don't buy Part A when you're first eligible for Medicare (usually when you turn 65), you might pay a penalty.
Did Medicare withholding go up for 2022?FICA tax includes a 6.2% Social Security tax and 1.45% Medicare tax on earnings. In 2022, only the first $147,000 of earnings are subject to the Social Security tax. In 2023, it rises to $160,200. A 0.9% Medicare tax may apply to earnings over $200,000 for single filers/$250,000 for joint filers.
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