Navigating FICA Taxes: Demystifying Your Payroll Obligations

Are you confident in navigating the maze of FICA taxes, or are you lost in its glorious complexity??

When you're the business owner doing the paying, FICA payroll taxes are supremely important. If you don’t pay the IRS, you’ll owe a significant portion of it personally, even though it’s a business tax.

Here’s what you need to know.

Why does the IRS make such a big deal out of FICA Taxes??

Money collected from the FICA tax is vital.?

It funds two of our nation's most critical social safety net programs (don’t worry, it’s not socialism!): Social Security and Medicare, which ensure financial security for millions of Americans.

FICA taxes affect individuals, businesses, employees, and the self employed.?

It takes a chunk out of EVERYONE'S paycheck.

The Details of FICA

1. Social Security and Medicare Tax Rates:

FICA taxes are dual-tiered. The Social Security tax rate is 12.4%, capped at an annual income limit, while the Medicare tax rate remains fixed at 2.9%, with no income ceiling.

Combined, these rates constitute the 15.3% FICA tax.

2. FICA Taxes for Employed Workers:

If you’re employed, meaning you receive a paycheck and a W-2, you and your employer share responsibility for the FICA tax equally, with 7.65% deducted from your paycheck and the same percentage matched by your employer.

3. Who Pays the Other Half When You're Self Employed?

You do.

When you’re self employed, you take on the entire 15.3% tax burden, which is applied to 92.35% of your net earnings.?

That’s a lot of money!?

The government tries to help you out by allowing deductions for half of the self-employment tax amount to alleviate the tax liability a bit…although not entirely.

Remember that when you dream about going at it alone.

4. Additional Medicare Tax:

High-income earners pay an additional Medicare tax of 0.9% on certain income. This tax is solely borne by the employee. There's no employer contribution.

It's supposed to show how progressive taxes are by making the rich pay more.

Conclusion:

Because they support social security and Medicare, which many people rely on, FICA taxes are a crucial part of U.S. taxes and our ability to take care of the elderly as Americans.?

They’re expensive for everyone, whether you’re an? employee, self-employed, or business owner, but when you know what you’re paying and why, whether its 7.5%, the full 15.3%, or matching your employee’s 7.5%, it makes it an easier pill to swallow...kindof? Or it may stop you from using your employee’s 7.5% to fund your business.

And that’s a good thing.