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Federal Insurance Contributions Act (FICA)

Social Security (S.S.) and Medicare (Med or HI)


Year 2012 2012 2011 2011 2010 2010 2009 2009 Type of (FICA) Social Security Tax Medicare Social Security Tax Medicare Social Security Tax Medicare Social Security Tax Medicare Maximum Taxable Earnings $110,100.00 unlimited $106,800.00 unlimited $106,800.00 unlimited $106,800.00 unlimited Rates 6.2% each for employer and employee 1.45% 6.2% each for employer and 4.2% employee 1.45% 6.2% each for employer and employee 1.45% 6.2% each for employer and employee 1.45%

Social Security Rate as part of the FICA (SS or OASDI) tax is at 6.2% of a base of $106,800 for the year of 2010. For this subsection of the chapter, students should use the maximum taxable earnings of $106,800 unless otherwise directed by their instructor. Any earnings in excess of the cap of $106,800 are not taxable.

A careful record of each employees earnings must be maintained every year so that the employer will know when the federal income tax cap has been reached and when the employees earnings are about to reach the cap. Very often part of a paycheck during the year will become non-taxable while part of it is still below the cap and still taxable. Employees have taxes taking out of every paycheck for FICASS so the student should only calculate the taxes for the current paycheck and not the entire year unless stated in the instructions of the problem. The payroll system is a pay as you go system in the United States where the employee pays taxes on their gross pay for each paycheck during the year.

FICA Social Security (S.S.) EXAMPLES

No Employee 1 2 3 Carl Clay Charlie

Cumulative earnings before this pay period $100,000 $105,000 $125,000

Pay amount this period $4,308 $4,038 $5,306

Taxable Salary $4,308 $1,800 $0

SS Tax
$267.10 $111.60 $0

MJC Revised 12/2011

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Federal Insurance Contributions Act (FICA)


In case number 1-Carl paid taxes on his cumulative earnings of $100,000 to date so, his earnings are below the cap of $106,000. Case 1.

Even with the current paycheck Carls cumulative earnings has not yet reached the cap for the year so all of his current paycheck is taxable. In case number 2-Clay cumulative earnings are $105,000, which is just below the cap. If you take the cap of $106,800 minus his current cumulative earnings of $105,000 then only $1,800 of his current paycheck is below the cap and therefore taxable.

In case number 3 Charlies cumulative earnings of $125,000 is already well above the cap of $106,000 therefore none of his current paycheck is taxable. Once an employees cumulative earnings go over the cap then the rest of the years paychecks are no taxable income.

MJC Revised 12/2011

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Federal Insurance Contributions Act (FICA)


Medicare rate for the part of FICA (Med. or HI) Tax rate is 1.45% on the entire amount of the employees income. There is not a cap on the Medicare portion of the FICA taxes. The percentage rate for Medicare has not changes since it began. FICA Medicare Examples Cumulative earnings Pay amount before this pay period this period $100,000 $4,308 $105,000 $4,038 $125,000 $5,306

No. 1 2 3

Employee Carl Clay Charlie

Taxable Wages $4,308 $4,038 $5,306

Med. Tax $62.47 $58.55 $76.94

Cash 1 Carls Med. Tax is $62.47. The calculation is: $4,308 X .0145 = $62.47 Case 2 Clays Med. Tax is $58.55. The calculation is: $4,038 X .0145 = $58.55 Case 3 Charlies Med. Tax is $76.94. The calculation is: $5,306 X .0145 = $76.94 *Note: these final totals for med. tax are rounded to the nearest hundredth (cent).

MJC Revised 12/2011

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