FICA TAXES ARE MADE UP OF SOCIAL SECURITY AND MEDICARE TAXES
The Federal Insurance Contribution Act (FICA) taxes are made up of two parts: Social Security and Medicare taxes.
SOCIAL SECURITY TAX
Social Security, also known as the Old-Age, Survivors, and Disability Insurance (OASDI), provides insurance for retirement, death, or disability. Employers and employees contribute equal amounts – 6.2 percent each (12.4 percent total) – towards the tax. Whatever the employee pays, the employer pays. The maximum amount of an employee’s wages that are subject to the Social Security tax for 2023 is $160,200, up $13,200 from $147,000 in 2022. In other words, only the first $160,200 of an employee’s wages can be taxed, making the maximum Social Security tax paid by an employee $9,932.40
MEDICARE TAX
Medicare taxes support a federal health insurance program for individuals 65 years and older that covers hospital care, nursing and hospice care, medical equipment, prescriptions, and other medical expenses. The employer and employee each pay 1.45 percent (2.9% total). Unlike the Social Security tax, there is no cap or limit on income – all income is taxable.
An additional Medicare tax applies to high income tax payers. The regulation went into effect in 2013, and states that if individuals are paid in excess of the thresholds below, then they owe an extra 0.9 percent towards the Medicare tax (so a total of 2.35% (1.45% + 0.9%) for those making above $200,000). Only the employee pays this tax, not the employer.
| FILING STATUS | THRESHOLD AMOUNT |
|---|---|
| Married, filing jointly | $250,000 |
| Married, filing separately | $125,000 |
| Single | $200,000 |
| Head of Household (with qualifying person) | $200,000 |
| Qualifying widow(er) with dependent children | $200,000 |
The total FICA tax is 15.3% (12.4% Social Security + 2.9% Medicare).
PENALTIES FOR DEPOSITING FICA TAXES LATE
Standard penalties for late or incorrect deposits of federal income tax, Social Security and Medicare taxes include:
| 2% | Deposits made 1 to 5 days late |
|---|---|
| 5% | Deposits made 6 to 15 days late |
| 10% | Deposits made 16 or more days late. Also applies to amounts paid within 10 days of the date of the first notice the IRS sends asking for the tax due |
| 10% | Amounts (that should have been deposited) paid directly to the IRS, or paid with your tax return. |
| 15% | Amounts still unpaid more than 10 days after the date of the date of the first notice the IRS sent asking for the tax due or the day on which you received notice and demand for immediate payment, whichever is earlier. |
(based on the % of due tax)
TRUST FUND RECOVERY PENALTY
Trust fund taxes are federal income taxes and Social Security and Medicare taxes withheld from the employee. Trust fund taxes that are withheld from employee’s paychecks, but aren’t sent to the federal government can be penalized. Those individuals responsible can be held personally liable for the penalty – which is 100 percent of the unpaid trust fund tax, plus whatever interest is accrued. This penalty is applied to individuals who collect or pay taxes, and who “willfully” do not pay trust fund taxes.