FICA Employer Rate | Small Business Accounting Services

Employer FICA Rates

FICA, the Federal Insurance Contributions Act, helps to sustain some of the core programs that support retired and disabled individuals, as well as children of deceased workers, in the United States. Under FICA, a certain percentage of an employee's salary is withheld annually. This money is used by the federal government to fund Social Security and Medicare. The employer must match this contribution for each employee. The percentage contributed by the employer is often referred to as the FICA employer rate or the employer FICA rate.

The FICA Employer Rate and How it Breaks Down

The employer FICA rate is a major consideration for the payroll departments of any businesses that have employees. It can be useful to know exactly how much is typically withheld for FICA and where it all ends up. Understanding the breakdown of FICA taxes will help you plan your payroll better. FICA contributions are broken down as follows:

Social Security Tax: As of 2014, the employer must contribute 6.2% of an employee's salary to match the 6.2% withheld from the employee's wages.
Regular Medicare Tax: As of 2014, the employer must contribute 1.45% of an employee's salary to match the 1.45% withheld from the employee's wages.
Medicare Surcharge: Do you have employees who make more than $200,000 in salary each year? If so, there's an additional surcharge of 0.9% for each of these employees. This was initiated in 2013.

Note that there is an annual "wage cap" on the amount that you are obligated to contribute for Social Security taxes. This amount rises every year based on inflation. For example, in 2013, employers would withhold 6.2% of an employee's wages, up to $113,700, and match that contribution. In 2014, the wage cap increased to $117,000 and it is expected to continue growing.

The rules around FICA withholding can vary; for example, they are different when you are considering the wages paid to employees who also receive tips. Whatever the circumstances, however, it is important for employers to meet their FICA tax obligations. Failing to withhold a sufficient amount of employee wages for FICA can leave you in non-compliance and might expose you to significant tax liabilities and other negative consequences that can be devastating to your business. A sound bookkeeping strategy is absolutely essential.

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