The Federal Insurance Contributions Act $($FICA$)$ imposes Social Security and Medicare taxes. It was passed by Congress in $1935$ to provide benefits for qualified retired and disabled workers. FICA taxes have two parts, Social Security and Medicare. Employees and their employers are both required to pay FICA taxes. Employers withhold a specified percentage of each employee's wages up to a maximum based amount, match the amount withheld with an equal amount, and pay the toal to the IRS. Some employers have tried to withhold and keep the money and they are in jail.

The Social Security $($OASDI$)$ tax rate is $6\mathrm{.}2$ percent $(\mathrm{.}062)$ and the Medicare tax rate is $1\mathrm{.}45$ percent $(\mathrm{.}0145)$ each for employees and employers in $2024.$ The maximum wages subject to the Social Security portion of the FICA tax is

$2021$ $$142,800$

$2022$ $$147,000$

$2023$ $$160,200$

$2024$ $$168,600$

You must pay SS and Medicare tax on every dollar you earn up to those amounts $($it is withheld from your paycheck$0,$ and no tax for the rest of that year when you reach those amounts.

Katherine earns $$21,500$ for $2021.$ The FICA tax on her wages is calculated:

Katherine's part:

Social Security: $\mathrm{.}062$ x $$21,500=$ $$1,333\mathrm{.}00$

Medicare: $\mathrm{.}0145$ x $$21,500=311\mathrm{.}75$

Total Employee FICA tax $=$ $$1,644\mathrm{.}75$

Maximum Employer's part by year:

$2021$ $$142,800$

$2022$ $$147,000$

$2023$ $$160,200$

$2024$ $$168,600$

Social Security: $\mathrm{.}062$ x $$21,500=$ $$1,333\mathrm{.}00$

Medicare: $\mathrm{.}0145$ x $$21,500=311\mathrm{.}75$

$$1,644\mathrm{.}75$

Add both amounts: Total paid to the government on her behalf: $$1,644\mathrm{.}75+$ $$1,644\mathrm{.}75=$ $$3,289\mathrm{.}50$ for the year.

Therefore, when illegal immigrants do NOT pay into the sytsem, there is no money to pay them when they retire. What happens? $($Could be a test question$)$

What happens if you are self$-$employed?

You have to pay both parts. There is a tax form to deal with that. $($You do get to deduct the amount you pay as your own employer.$)$

Employers must file form $941$ every $3$ months. It reports the total amount of wages paid for $3$ months and the company must send the amount to the government.

FUTA Tax

FUTA is the Federal Unemployment Tax Act

It is NOT withheld from the employee's paycheck. It is paid by the employer.

Example: Karen has two employees in $2024.$ John earned $$12,500$ this year and Sue earned $$15,000.$ The FUTA tax ies calculated as follows:

John's wages $$12,500($maximum tax is on $$7,000)$ $$7,000$

Sue's wages $$15,000($maximum tax is on $$7,000)7,000$

Total FUTA wages $$14,000$ x $0\mathrm{.}6\%=$ $$84$ all out of the employer's pocket.

This amount is reported and paid with Form $940,$ Employer's Annual Federal Unemployment $($FUTA$)$ tax return.

SUTA stands for State Unemployment Tax Act. You have to repeat the process for the individual state in which you work. State Unemployement tax rates vary by state.

Payroll Problem

Stark Company has five employees. Employees paid by the hour receive a $$10$ per hour pay rate for the regular $40-$hour week plus one and one$-$half times the hourly rate for each overtime hour beyond the $40$ hours per week. Hourly employees are paid every two weeks, but salaried employees are paid monthly on the last biweekly payday of each month.

FICA Social Security taxes are $6\mathrm{.}2\%$ of the first $$160,200$ paid to each employee, and FICA Medicare taxes are $1\mathrm{.}45\%$ of gross pay. FUTA taxes are $0\mathrm{.}6\%$ and SUTA taxes are $5\mathrm{.}4\%$ of the first $$7,000$ paid to each employee.

The company has a benefits plan that includes medical insurance, life insurance and retirement funding for employees. Under this plan, employees must contribute $5\%$ of their gross income as a payroll withholding, which the company matches with double the amount.

Complete the payroll register for the biweekly period ending Aug. $31,$ which is the last payday of August.

Employee

Cumulative Pay $($Excludes Current Period$)$

Current Period Gross Pay

FIT Withholding

FUTA

FICA S$.$S$.$ Employee

FICA Medicare Employee

Employee$$ Benefits Plan Withholding

Employee Net Pay

Pay Type

Pay Hours

Gross Pay

SIT Withholding

SUTA

FICA S$.$S$.$ Employer

FICA Medicare Employer

Employer$$Benefits Plan Expense

Kathleen

$115,200\mathrm{.}00$

Salary

$---$

$7,000\mathrm{.}00$

Anthony

$6,800\mathrm{.}00$

Salary

$---$

$500\mathrm{.}00$

Nichole

$15,000\mathrm{.}00$

Regular

$80$

$800\mathrm{.}00$

Overtime

$8$

Zoey

$6,500\mathrm{.}00$

Regular

$80$

$800\mathrm{.}00$

Overtime

$4$

Gracie

$5,000\mathrm{.}00$

Regular

$74$

$740\mathrm{.}00$

Overtime

$0$

Totals

$148,500\mathrm{.}00$