For the last part of this series, we will be looking at the additional federal payroll taxes tied to employee wages and the procedure for properly depositing employee tax withholdings to the IRS.
Social Security Taxes – FICA and Medicare
The Federal Insurance Contributions Act (FICA) payroll taxes, commonly referred to as the social security taxes, are the taxes used towards funding Social Security and Medicare. The government draws FICA and Medicare taxes from both employee’s and employer’s gross earnings.
The current tax rate for FICA in 2017 is 6.2% for both employees and employers (for a total tax rate of 12.4%), and the Medicare tax rate in 2017 is 1.45% also for both employees and employers (for a total rate of 2.9%). Employers must withhold the correct amounts from their employee’s gross pay to pay their employer’s share of the social security taxes. The FICA tax has a wage cap set at $127,200 for 2017. This means that FICA taxes will be only taken out of the first $127,200 an individual or employer will earn. There isn’t a wage cap set on Medicare taxes though. In fact, there’s an Additional 0.9% Medicare Tax for high earners making more than $200,000 (Single) in a year.
Unemployment Insurance Tax
The Federal Unemployment Tax Act (FUTA) imposes an additional payroll tax on employers (but not on employees) to help fund federal unemployment programs administered by the states. The current FUTA tax rate is 6.0% for 2017 and is applied to the first $7,000 earned by employees. However, employers can claim a federal tax credit of up to 5.4% on FUTA taxes (depending on state unemployment tax rates), so in reality the actual tax paid federally may end up being only 0.6% of the first $7,000 earned.
Depositing Payroll Taxes
Generally, employers must deposit payroll taxes (federal income tax, FICA, Medicare, FUTA) periodically. The IRS requires these withholdings be deposited electronically through their Electronic Federal Tax Payment System (EFTPS) system. There are two deposit schedules, monthly and semi weekly. Which schedule you follow is based on your total tax liability you reported on your IRS Form 941 in a lookback period, usually quarters of the previous calendar year.
Each employer’s tax situation is different, so having knowledgeable support will be nothing but beneficial. MiklosCPA supports clients with their back office accounting and taxation needs using modern, cloud-based software with the personalized touch of frequent communication. If you are interested in learning more about our services, do not hesitate to contact us.
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