What to Know About Social Security Tax Withholding Rules - FICA
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What to Know About Social Security Tax Withholding Rules - FICA

FICA withholding can be a significant amount of your pay check. Learn more about the rules of Social Security Tax.

One of the important components of payroll taxes is social security tax. The Federal Insurance Contributions Act (FICA) stipulates and levies the regulation for this tax. The amount calculated is suspended from the pay-check and is used as some contribution for your social security account. There are strict regulations for social security taxes, where non-compliance is subject to strict punitive damages.

Based on Gross Earnings

Your withholdings for social security tax are based on your earnings before tax during the specified period. IRS takes this figure to be either your wages or salary. Salary can be defined as a fixed amount that is paid for a specified time period worked for. If paid on an hourly basis, earnings are the product of hours worked and the hourly rate.

FICA Breakdown

The Federal Insured Contributions Act requires that the employer or the employee should divide the withholding in two categories- Social Security and Medicare. While social security aims at providing monthly payments for retirements and other benefits, the medicare provides medical benefits for particular individuals who reach 65, according to IRS.

Fiduciary Relationship

Every time your payrolls are processed and withheld from your earnings from your employer, it creates a fiduciary relationship. Meigs & Meigs says that FICA requires the employer has to withhold a portion of the employee’s earnings, which should be used a social security contribution. The employer keeps the money of someone else and therefore is in a trust relationship. The employer should maintain a systematic recording and should handle the funds as per the IRS stipulations.

Employer Matching

Social security taxes identical to payroll tax expenses. The withheld amount of the pay-check should be matched with the amount by the employer. For example, if your social security amount is $35.00, $35.00 should be paid by your employer for your social security. Subsequently, only $35 from your pay-check will be withheld. The total amount, i.e., $70 is submitted to the IRS by your employer as an element of payroll processing cycle. The Social Security date changes on a decided basis and is listed with the prevailing IRS Circular E Publication for the US taxpayers.

Wage and Base Earnings

Tax rate and wage base are two important factors for calculating the social security tax. Meigs & Meigs reports that these figures change on the basis of federal legislation. Your tax depends on your wage base. Earnings going beyond the specified amount are exempted from tax. For example, if your total wages are $50000 and $45000 is the wage base; in such a case, 8 per cent is the social security tax rate. On $45000, you pay 8 per cent social security tax. The balance of $5000 would be tax-exempt.

Tax Submission Dates

Within a specified date, the withheld social security taxes should be given to the IRS. The date is decided keeping in mind the payroll processing date. The IRS publication, which is known as Circular E, Employer’s Tax Guide, is used by the employer for getting the required submission dates. If the dates are not followed, interest and penalties may be imposed.

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