All employers are required to withhold Social Security taxes from their employees’ wages. In addition, employers must pay a matching tax on behalf of their employees. These taxes are collectively known as FICA taxes, which stands for Federal Insurance Contributions Act.
FICA taxes are used to fund the Social Security and Medicare programs. The Social Security program provides benefits to retired workers and their families, as well as to survivors of deceased workers. Medicare provides health insurance coverage for seniors and some disabled individuals.
Employee vs Employer FICA Contributions
FICA taxes are a shared responsibility between employee and employer. For 2020, the employee portion of FICA taxes was 6.2% of wages up to the Social Security wage base. The employer portion was also 6.2%. The Medicare tax rate was 1.45% for both employees and employers. There is no wage base limit for Medicare taxes.
Self-employed individuals are responsible for the entire FICA tax burden, as they are simultaneously the employer and the employee. The self-employment tax rate is 15.3% for 2020. This includes both the Social Security and Medicare portions of the tax.
How Do Employers Pay and Report FICA Taxes?
Employers must withhold the employee portion of FICA taxes from their employees’ wages. The employer portion is paid directly by the employer.
Employers must then deposit FICA taxes into the federal government’s coffers on a quarterly basis. This is most commonly done using the IRS’s Electronic Federal Tax Payment System. Self-employed individuals are also subject to these payment requirements.
Most employers use Form 941 to report their quarterly taxes every few months. The deadlines to file each year are April 30, July 31, October 31, and January 31. However, those with annual liabilities of less than $1,000 may be approved to file Form 944, which is the annual version.
Additional Social Security Responsibilities
Employers are also responsible for ensuring that their employees’ Social Security numbers are correct and reporting any changes to the Social Security Administration.
In addition, employers must provide their employees with a statement of earnings (known as a W-2 form) at the end of each year. This statement must include the amount of wages earned and the amount of FICA taxes withheld.
Employers must also keep accurate records of their employees’ wages and taxes withheld. These records must be kept for at least four years after the taxes were due.
What Happens If Employers Fail to Pay FICA Taxes?
Employers who fail to comply with their FICA tax responsibilities can be subject to hefty penalties and interest. In extreme cases, they may even face criminal charges. Therefore, it’s vital for employers to understand and comply with their FICA tax responsibilities under the law.
The IRS offers a variety of resources to help employers comply with their tax responsibilities, including publications, online tools, and educational programs. If you have any questions about your employer’s FICA tax responsibilities, you should contact the IRS, the Social Security Administration, or a qualified professional.