About FICA
Established by the Federal Insurance Contribution Act (FICA), all US workers are obligated to make contributions from their wages to support the federal Social Security and Medicare programs. If the worker is employed, his employer must match his contribution, as well. If he is self-employed, he must pay both amounts to the federal government.
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Amount
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Employees are required to pay 6.2 percent of the first $106,900 they earn to the federal government to support the Social Security system. In addition, workers must pay 1.45 percent of their total salary for Medicare. Your employer must match the amount of your contribution. If you are self-employed, you must pay both.
Withholding
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Employers are obliged to withhold FICA for all employees. That amount along with the company's payment must be deposited with the Internal Revenue Service monthly along with the federal taxes withheld for the employee, along with Form 8109-B, the Federal Deposit Coupon. At the end of each calendar year, the employer must include the amount of FICA taxes paid by each employee on his W-2 form. A self-employed individual must include the FICA taxes on his 1040 form and pay them along with the tax on his income.
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Penalties
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If a company withholds less than what is due from the employee, it will have to pay a 28 percent penalty of the amount of the shortfall. If the company willfully fails to pay the taxes and FICA payments withheld from employees, it will sustain a 100 percent penalty. Finally, businesses that declare bankruptcy are still liable for 100 percent of contributions due.
Exception
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If you run a "mom-and-pop" sole proprietorship or partnership, and you have your child working for you, you may receive an exemption from withholding FICA taxes from his wages and paying the company's share. The only caviat is that the wages earned by the child be reasonable.
Misconceptions
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Many people believe that, since they have earned less than is required for federal taxes, that they also avoid paying FICA. On the contrary, FICA is payable from the first dollar of your earnings. For example, if you are retired and have self-employment income of $10,000, you may not owe any federal income tax, but you but you will owe $1,530 (15.3 percent of $10,000) for FICA.
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