Understanding Your FICA Obligations as a Small Business Owner

Understanding Your FICA Obligations as a Small Business Owner

The term FICA, which stands for Federal Insurance Contributions Act, is a mandatory federal tax that requires employees to pay a certain percentage of each paycheck towards the Medicare and Social Security programs. Employers must pay the same percentage as employees from every paycheck while self-employed individuals pay both the employer and employee portion of FICA.

Although often referred to in the singular, FICA describes two separate government entitlement programs. That means all people receive them when reaching the minimum age requirement. However, both programs provide coverage to significantly more people beyond those who have reached retirement age.

Amounts That Employers and Employees Must Pay Towards FICA

Both employers and employees pay 7.65 percent of the employee’s gross income per paycheck towards FICA for a total of a 15.3 percent payment to the Internal Revenue Service (IRS). The 7.65 percent breaks down to 6.2 percent towards Social Security for annual wages up to $132,900. Each party also pays 1.45 percent towards Medicare. Medicare differs from Social Security in that the IRS doesn’t impose a wage base where employers and employees stop paying it. In fact, the amount increases with wages. Employers must deduct and pay an additional .9 percent for employees who fall into these classifications:

  • $125,000 for married employees filing separately
  • $200,000 for all other employees
  • $250,000 for married employees filing jointly  
How Employers Pay FICA Taxes

Withholding funds to cover each employee’s FICA obligation is only the first step. You also need to deposit the taxes by the due date and create and submit a report describing the FICA taxes you have submitted. The IRS accepts payroll tax deposits for FICA on a semi-weekly or monthly basis. You can determine which classification your company meets by looking up your company’s total tax liability on Form 941 during a look-back period for the last four quarters.

Your company will make semi-weekly deposits if it needs to remit more than $50,000. Your FICA payment would be due by the Wednesday following payroll if your employees receive their checks on a Wednesday, Thursday, or Friday. FICA deposits are due the Friday after payroll if your company issues payroll checks on Saturday, Sunday, Monday, or Tuesday.

Monthly depositors include companies with deposits that are typically less than $50,000. All new employers make monthly deposits during their first year of operation. Companies with a monthly deposit obligation must make the deposit by the 15th of each month. The deadlines for FICA reporting are April 30, July 31, October 31, and January 31.

Get Help with Payroll Deposits and Tax Reporting

Payroll deposits and tax reporting are two of the main services we offer to small businesses here at Palmetto Payroll. Please contact us today to learn more about how we can ease your administrative burden by outsourcing these tasks to us.