There are two components of FICA tax that are withheld from your payroll check, Social Security and Medicare. You’ll want to know how to calculate the withholdings on your payroll taxes.
Both employees and employers equally split this mandatory payroll tax. FICA taxes differs from the federal and state income tax by taking a percentage of each employee’s taxable wages. It consists of two types of tax components – Social Security and Medicare.
Why are these taxes different than federal and state income taxes? Both Social Security and Medicare are considered insurance taxes. Social Security allows insurance for those of old-age, survivors, and disabled. While Medicare includes hospital and medical insurance.
Understanding FICA Taxes that are Withheld
Social Security Wage base has been increased for 2022. The Social Security Administration has announced on October 13, 2021, that the maximum earnings subject to the Social Security component of the FICA tax will increase from $142,800 to $147,000 for 2022. This means that for 2022, the maximum Social Security tax that employers and employees will each pay is $9,114. ($147,000 x 6.2%).
There is no ceiling on the Medicare component of FICA tax. The percentage remains at 1.45% of all earnings. For individuals with earned income of more than $200,000 ($250,000 for married couples filing jointly, $125,000 for married filing separately) will pay an additional 0.9% in Medicare taxes.
The Nerds Can Help!
The CPA Nerds is a team of tax experts that are here to help and guide you in the crazy world of bean-counting, we mean accounting. Understanding FICA taxes and how they can impact you as an employer or employee can be confusing. It doesn’t have to be. We always invite those to contact us or give us a call at (586) 468-0200 if you have any questions!