What Is FICA Tax?
Are you doing taxes for the first time? There are a couple of different types of payroll taxes such as income taxes, unemployment taxes, and FICA taxes. Social Security and Medicare taxes are the two types of taxes that fall under the umbrella of FICA taxes. We'll go over what FICA taxes are, how they're calculated, and who is liable and responsible for paying them in this article.
Understanding FICA Tax and Who Pays?
FICA, which stands for Federal Insurance Contributions Act, is a federal law that regulates the payment of Social Security and Medicare taxes. FICA tax payments must be split between the employer and the employee by law.
Each person pays the same amount of taxes. If you work a typical job where you receive a W-2 at the end of the year, your employer will deduct your part of FICA taxes from your paycheck automatically. Your employer will send that portion straight to the IRS on your behalf. Your employer will pay the IRS immediately for half of the tax.
If you're self-employed or considered someone who runs their business on the side, you will need to pay your payroll taxes yourself as part of your quarterly tax estimates through payroll or through Schedule C, a tax form for reporting profit or loss from a business.
Because self-employed people must pay both sides of the payroll tax, the federal and state income taxes, the FICA tax burden is 15.3% of all income earned as a self-employed person.
How FICA Tax Is Calculated
When you take a look at your paycheck, you'll realize that your FICA taxes are deducted from your gross wages. The FICA tax rate remains unchanged and is set at 6.2% for Social Security and 1.45% for Medicare, totaling up to 7.65%. Employers must match the same percentage of the funds totaling up to 15.3% of the average salary. Only the first $147,000 of your earnings are subject to the social security tax in 2022.
Here's an example of how FICA taxes may be withheld from a worker who earned $135,000 in 2022.
The employee would pay 6.2% in Social Security taxes on $135,000, leading to a total of $8,370.00. They would also pay 1.45% Medicare taxes on their entire gross compensation, totaling $1,957.50. They would pay a total of $10,327.50 in FICA taxes.
However, keep in mind that the company will match both of your tax contributions. When all of this is factored in, the employee's wages would result in a total of $20,665 in FICA taxes.
Resolve Your Tax Bills
If you've found yourself in a nasty mess with the IRS, take a deep breath. For taxpayers who may have difficulty paying off an excessive amount of tax debt, there's a new and improved relief program that consolidates many major relief programs into a one-size-fits-all assistance program. Any issues regarding back taxes, unfiled years, or any other tax-related problems may be solved through one program; the IRS Fresh Start Program!
See If You Qualify For The Fresh Start Program Today!
Resolve your tax debt before the IRS surprises you with late fees and penalties!
Answer a few questions
Qualify and be presented with a resolution - click here
Enroll in Fresh Start
You can click here to be connected with a verified partner of IRS Fresh Start Initiative