Every person working in the U.S. as an employee must have FICA taxes withheld from every paycheck by law. FICA taxes include taxes for both Social Security and Medicare. The FICA tax is shared by employees and employers, so one half of the tax is deducted from employee paychecks each payday. The other half, an amount equal to the amount deducted from employee paychecks, must be paid by you as an employer.
The following provides a step-by-step guide to calculating FICA taxes.
Before You Calculate FICA Tax Withholding
To calculate FICA taxes from an employee's paycheck, you will need to know:
- The amount of gross pay for the employee for that pay period
- The total year-to-date gross pay for that employee
- The Social Security and Medicare withholding rates for that year (see below)
- Any amounts deducted from that employee's pay for pre-tax retirement plans.
Employee pay subject to Social Security and Medicare taxes may be different from gross pay. This article on Social Security wages explains what's included and what's not.
In addition, you will need to know, for each year:
The Social Security Maximum. This is the maximum wages or salary amount for 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. Go to this article on the "Social Security Maximum" to find this year's maximum withholding amount.
The Additional Medicare Tax. The pay amount at which additional Medicare taxes must be withheld from higher-paid employees. The pay amount is different depending on the individual's tax status (married, single, etc.) At the specified level for the year, an additional 0.9% must be withheld from the employee's pay for the remainder of the year. You must begin deducting the additional 0.9% when the employee's wages reach $200,000 for the year, no matter what the employee's marital status is.
FICA Tax Withholding Rates
There are actually two different rate components, broken out as follows:
- The Social Security (OASDI) withholding rate is gross pay times 6.2% up to the maximum pay level for that year. This is the employee's portion of the Social Security payment. You as the employer must pay 6.2% with no limit.
- The Medicare withholding rate is gross pay times 1.45 %, with a possible additional 0.9% for highly-paid employees. Your portion as an employer is also 1.45% with no limit, but you (the employer) don't have to pay the additional 0.9%
- For a total of 7.65% withheld, based on the employee's gross pay.
Doing the Withholding Calculations
Begin your calculation with the employee's gross pay amount for a given pay period, then calculate the Social Security and Medicare withholding.
Calculate Gross Pay.
The gross pay for a salaried employee is the amount of salary for that period (usually, the employee's annual salary divided by the number of pay periods).
For 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 $1291.67.
The gross pay for an hourly employee is the total calculated pay, multiplying hours times hourly rate and including hours for overtime and the overtime rate.
For example, Carlos worked 44 hours during a week at $12.50 an hour:
- First, multiply 40 hours x $12.50 = $500.
- Then multiply 4 overtime hours x $18.75 (1 1/2 times the hourly rate) = $75.00
- Add $500 + $75 for a total of $575 in gross wages for the week.
Determine the amount of employee wages/salaries that are subject to FICA taxes. Eliminate any amounts that are not subject to these taxes.
Calculate the Social Security Withholding.
Multiply the current Social Security tax rate by the amount of gross wages subject to Social Security. 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.
Double-check that the employee's year-to-date wages/salaries are not over the Social Security maximum wages for the year. Stop withholding Social Security for the year at the point where the employee's total pay (including overtime and bonuses) reaches the maximum for that year.
Calculate the Medicare Withholding.
Multiply the current Medicare tax rate by the amount of gross wages subject to Medicare. Check to see if the employee has reached the additional Medicare tax level and increase deductions from the employee's pay. The 0.9% additional Medicare tax must be deducted when the employee's wages reach $200,000 each year, and the additional amount is calculated on only the amount over $200,000.
Calculate Social Security and Medicare withholding separately, because they are included on the employee's paycheck and in the employee's W-2 in different places.
Account for the Employer's Portion of FICA Taxes
After you have completed the FICA tax calculations for all employees, you must set aside an amount equal to the total for your employer portion of the FICA taxes. This amount includes:
- 6.2% of the employee's total FICA wages for Social Security, with no maximum, and
- 1.45% of the employee's total FICA wages for Medicare (not the additional 0.9%).
What If I Withheld Too Much?
If you deducted too much tax from an employee's pay, either for Social Security or for Medicare tax, you may have several things to fix:
- Refund the employee. You will need to pay the employee back for the excess deduction amount. You can give this amount back to the employee in a paycheck or as a separate check. Be sure you don't deduct Social Security from this check!
- File a Corrected 941. If the mistake was included in Form 941 (quarterly payroll) report, you will need to file a correction form (941-X) to receive a refund.
- Change the employee's payroll record. Deduct the over-payment of Social Security taxes from the employee's payroll tax record. The W-2 Form for an employee who earns more than $106,800 should show (1) the total amount of pay earned for the year and (2) the total Social Security wages as $106,800. Medicare wages will be the same as the total amount of pay.
Reporting FICA Tax Withholding
You must report FICA tax withholding:
- To the employee on each paycheck, including both the withholding amount for the current pay and total amount of FICA tax withheld for the year to date.
- To the IRS on Form 941- the Employer's Quarterly Wage and Tax Report.
- On the employee's W-2 form at the end of the year.
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.