Is social security and medicare tax part of federal withholding

Table of Contents Show

• Midyear payroll conversion guide
• Do you know the federal, state and local minimum wage requirements?
• ADP’s adaptability: meeting franchisee needs, regardless of size
• Wage caps and floors
• Calculating the withholding and employer's portion amounts
• Calculating the medicare surtax withholding amount
• Does the federal tax rate include Social Security and Medicare?
• Are Social Security taxes part of federal taxes?
• Does Medicare withholding count as federal tax?

The Social Security tax is one of two taxes all employers are required to withhold under the Federal Insurance Contributions Act (FICA). The other is the Medicare Tax. FICA also mandates an Additional Medicare tax, though only for employees earning more than a set dollar amount.

Self-employed individuals generally must pay self-employment tax (SE tax) as well as income tax. SE tax is a Social Security and Medicare tax primarily for individuals who work for themselves. It is similar to the Social Security and Medicare taxes withheld from the pay of most wage earners. In general, anytime the wording "self-employment tax" is used, it only refers to Social Security and Medicare taxes and not any other tax (like income tax).

The Social Security tax is a percentage of gross wages that most employees, employers and self-employed workers must pay to fund the federal program. Certain groups of taxpayers are exempt from paying social security tax. It is the employer’s obligation to withhold the correct amount of Social Security tax from every paycheck and forward it to the federal government on time. Failure to do so can result in significant penalties.

Only the social security tax has a wage base limit. The wage base limit is the maximum wage that's subject to the tax for that year. Refer to "What's New" in Publication 15 for the current wage limit for social security wages.

Employers should record the name and social security number (SSN) of each employee as they’re shown on the employee’s social security card.  If the employee's name is incorrect as shown on the card (i.e. because of marriage or divorce), the employee should request an updated card from the SSA. You should continue to report the employee's wages under the old name until the employee shows you the updated social security card with the corrected name.

Go deeper

• Article IRS Releases 2019 Publications 15, 15-A, and 15-B
• Article Payroll 101: The 6 Payroll Taxes Employers Need to Cover
• Article Payroll 101: What to know about payroll deductions

Related resources

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Midyear payroll conversion guide

FAQ

Do you know the federal, state and local minimum wage requirements?

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ADP’s adaptability: meeting franchisee needs, regardless of size

An employer's federal payroll tax responsibilities include withholding from an employee's compensation and paying an employer's contribution for Social Security and Medicare taxes under the Federal Insurance Contributions Act (FICA).

Employers have numerous payroll tax withholding and payment obligations. Of the utmost importance is the proper payment of what are commonly known as FICA taxes. FICA taxes are somewhat unique in that there is required withholding from an employee's wages as well as an employer's portion of the taxes that must be paid.

The Federal Insurance Contributions Act (FICA) is the federal law requiring you to withhold three separate taxes from the wages you pay your employees. FICA is comprised of the following taxes:

1. 6.2 percent Social Security tax;
2. 1.45 percent Medicare tax (the “regular” Medicare tax); and
3. Since 2013, a 0.9 percent Medicare surtax when the employee earns over $200,000.

You must withhold these amounts from an employee's wages.

The law also requires you to pay the employer's portion of two of these taxes:

• 6.2 percent Social Security tax
• 1.45 percent Medicare tax (the “regular” Medicare tax).

As you can see, the employer’s portion for the Social security tax and the regular Medicare tax is the same amount that you're required to withhold from your employees' wages. (Different rules apply for employees who receive tips.)  There is no employer portion for the 0.9 percent Medicare surtax on high-earning employees.

In other words, you withhold a 6.2 percent Social Security tax from your employee’s wages and you pay an additional 6.2 percent as your employer share of the tax (6.2 employee portion + 6.2 employer portion = 12.4 percent total). Also, you withhold a 1.45 percent Medicare tax from your employee’s wages and you pay an additional 1.45 percent as your employer share (1.45 employee portion + 1.45 employer portion = 2.9 percent total). The total of all four portions is 15.3 percent (6.2 percent employee portion of Social Security + 6.2 percent employer portion of Social Security + 1.45 percent employee portion of Medicare + 1.45 percent employer portion of Medicare = 15.3 percent).

Unlike the other FICA taxes, the 0.9 percent Medicare surtax is imposed on the employee portion only. There is no employer match for the Medicare surtax (also called the Additional Medicare Tax). You withhold this 0.9 percent tax from employee wages and you do not pay an employer’s portion. Also, unlike the other FICA taxes, you withhold the 0.9 percent Medicare surtax only to the extent that wages paid to an employee exceed $200,000 in a calendar year. You begin withholding the surtax in the pay period in which you pay wages in excess of this $200,000 “floor” to an employee and you continue to withhold it each pay period until the end of the calendar year.

Wage caps and floors

The Social Security tax (also called OASDI) is subject to a dollar limit, which is adjusted annually for inflation. However, there is no annual dollar limit for the 1.45 percent Medicare tax. Unlike the other FICA taxes, the 0.9 percent Medicare surtax is not withheld unless wages paid to an employee exceed $200,000.

Social security wage cap

For 2017, your obligation to withhold and to pay the Social Security tax for an employee ends once you've paid that employee total wages of $127,200. (For 2016, the amount is $118,500.)

Medicare wages

As there is no ceiling on the 1.45 percent portions of the Medicare tax, you must continue to withhold and to pay the Medicare tax regardless of how much you pay an employee.

Medicare surtax wage floor

You withhold the 0.9 percent Medicare surtax only to the extent you pay an employee wages in excess of $200,000 in a calendar year. You do not begin withholding the Medicare surtax until the pay period in which you pay wages in excess of $200,000 to an employee. There is no employer share: you withhold the 0.9 percent surtax from employee wages.

Example

Trevor, your employee, received $170,000 in wages from you through November 30, 2017. On December 1, 2017, you pay Trevor a $50,000 bonus. Prior to December 1, you were not required to withhold the Medicare tax surcharge. On December 1, you are required to withhold Additional Medicare Tax on $20,000 of the $50,000 bonus. You may not withhold Additional Medicare Tax on the other $30,000. You must also withhold the additional 0.9 percent Medicare tax on any other wages paid to Trevor in December 2017.

Calculating the withholding and employer's portion amounts

You simply multiply an employee's gross wage payment by the applicable tax rate to determine how much you must withhold and how much you must pay in Social Security and regular Medicare taxes.

The Social Security and regular Medicare taxes owed are unaffected by the number of withholding exemptions an employee may have claimed for income tax withholding purposes.

Calculating the medicare surtax withholding amount

Unlike the 6.2 percent Social Security tax and the 1.45 percent Medicare tax, the 0.9 percent surcharge is imposed only on the employee. You withhold the surtax from employee wages, but there is never a matching payment required by the employer.

The employer’s and employee’s obligations with respect to the Medicare surtax are different. In some cases, there may be a “mismatch” between the amounts you are obligated to withhold and the amount of your employee’s surtax liability.

From the employee’s perspective, the 0.9 percent Medicare surtax is imposed on wages, compensation and self-employment earnings above a threshold amount that is based on the employee’s filing status. Once the threshold is reached, the tax applies to all wages that are currently subject to Medicare tax, to the Railroad Retirement Tax Act or to the Self-Employment Compensation Act.

The threshold amounts are as follows:

Does the federal tax rate include Social Security and Medicare?

Are Social Security taxes part of federal taxes?

Does Medicare withholding count as federal tax?