FICA tax rate: Figures and formulas employers need to know

As an owner of a small business, you have extra responsibilities. You wear many different “hats” which can include HR, administration, sales, and marketing. Another thing you’ll have to do is collect, pay, and report federal and state employment taxes if you have employees.

Each pay period, you should withhold, pay the employer portion, and deposit your employee’s Federal Insurance Contributions Act (FICA) payments. We cover details later in this post.

Ultimately, the Social Security portion of FICA payments goes to the Social Security Administration and the Medicare portion goes to the Department of Health and Human Services. But, how much do you have to pay and withhold? Learn more about the FICA tax and other details below.

What is FICA?

The Federal Insurance Contributions Act requires small business employers to withhold certain taxes on their W-2 employees’ paychecks. If you hire independent contractors (Form 1099), you’re not responsible for withholding anything from their pay.

FICA tax payments fund two social programs: Social Security and Medicare.Security payments are for disabled individuals, survivors of U.S. citizens who have passed away, or the elderly. Medicare goes to medical expenses for individuals who are 65 or older and certain disabled people.

Employers need to withhold and send  an employee’s portion of the taxes. Employers also must pay their portion of the Social Security and Medicare taxes and deposit the payments using the Electronic Federal Tax Payment System (EFTPS).

What is the FICA tax rate?

FICA tax rate

The 2021 FICA tax rate is 15.3%: 12.4% for Social Security taxes and 2.9% for Medicare taxes. Additionally, employers must withhold 0.9% for Medicare surtax for employees who earn more than $200,000 annually.

Employees and employers each pay half of the FICA rate or 7.65%. You need to withhold an additional amount if your employee receives $200,000 or more per year.

What is the FICA tax rate for the self-employed?

If you’re wondering, “what is the FICA tax rate as a self-employed person?” – it’s the same tax rate as a small business owner who employs full-time W-2 employees.

FICA tax is akin to self-employment taxes – so you’re taxed at a rate of 15.3% for both FICA tax or self-employment tax. Self-employment tax is calculated in the same fashion as FICA tax for employees – 12.4% for Social Security, 2.9% for Medicare taxes. Self-employed taxpayers must figure and file quarterly tax payments since they don’t have an employer.

While this seems like a lot of extra tax to pay, there’s good news: as a self-employed individual, you can deduct half of your self-employment tax on your tax returns, giving you an opportunity to reduce your overall taxable business income.

Looking for other ways to lower your taxable income? Check out these self-employed tax deductions.

Do you have to pay FICA taxes?

Employers have to pay and withhold FICA tax for their employees. These payments must be made throughout the year according to this schedule.

In addition to the information below, you should review schedule details from the IRS about depositing and reporting employment taxes.

  • If you report less than $50,000 in taxes in the previous four quarters, you should pay FICA tax monthly and according to the monthly schedule depositor due date.
  • If you report more than $50,000 in taxes for the past four quarters, then you should pay semi-monthly and follow the semiweekly schedule depositor due date rules.

You should also file Form 941, which reports the amount you earned within a quarter, or every three months. If you collect less than $2,500 in FICA tax per year, you can use Form 944 to report annually rather than on Form 941.

Lastly, take this tax task in earnest. If you don’t pay FICA taxes on time, you’ll incur a late fee and penalties along with other consequences.

Get help with FICA tax rates in 2021

Calculating your FICA tax rates in 2021, withholding FICA on paychecks, collecting, and depositing timely according to the schedule and running payroll is so much easier when you have help. In fact, you can get hands-on, personalized payroll services from Block Advisors.

Make an appointment now.


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