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Social Security (FICA) taxes
In addition to paying your employees' salaries and benefits, you will also have to pay half of their payroll taxes.
Payroll taxes include FICA and FUTA taxes. FICA taxes, named for the Federal Income Contributions Act, are tax revenues that are paid to Social Security and Medicare.
In addition to paying half your employees' payroll taxes, you must also withhold their share of FICA taxes from their income. You withhold FICA taxes when you process your payroll for a pay period. Most types of compensation, including tips, bonuses, and commissions, require withholding for payroll taxes. Generally, withholding for full- and part-time employees is treated the same way. FICA taxes consist of two main taxes:
- Old Age Survivors and Disability Insurance. For 2007, you pay 6.2% of the first $97,500 of employees' salary to the Old Age Survivors and Disabilities Insurance (OASDI) fund, which pays basic Social Security retirement and disability benefits. Employees pay the same percentage on the same amount of salary.
- Medicare. For 2007, you pay 1.45% on all employees' salary to Medicare's hospital-insurance (HI) fund. Employees pay the same percentage on all income. Medicare is the federal program run by the Centers for Medicare & Medicaid Services (CMS) to pay health care benefits to Social Security and other qualified recipients.
Self-employed persons pay the sum of both amounts, or 12.4% and 2.9%, respectively. The following table summarizes the components of FICA taxes:
FICA tax rates and income limits for 2007:
| FICA Category |
Tax rate |
Income limit |
| OASDI |
6.20% |
$97,500 |
| Medicare (HI) |
1.45% |
No limit |
| OASDI + HI |
7.65% |
$97,500 (OASDI) |
| Employer contribution |
7.65% |
$97,500 (OASDI) |
| Combined contribution |
15.3% |
$97,500 (OASDI) |
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Certain categories of wages and other compensation do not require you to withhold income or payroll taxes, including in most cases the premiums you pay for health and long-term care insurance. For more information on compensation not subject to withholding, see IRS Pub. 15.
Next Topic: Unemployment (FUTA) taxes
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