What Does Employers' FICA Share Mean?

As an employer, your share of FICA refers to the amount of Social Security and Medicare taxes that the federal government requires you to pay. Most employers in the United States are subject to these taxes. The Federal Insurance Contributions Act mandates the collection of both taxes.

Identification

The Social Security Act was enacted in 1935. In 1939, the taxing provisions were amended, taken out of the Social Security Act, placed into the Internal Revenue Code and renamed the Federal Insurance Contributions Act. Medicare was not signed into law until 1965, which is why Social Security alone is sometimes referred to as FICA. The IRS has the authority to collect both taxes; therefore, both Social Security and Medicare taxes are sometimes collectively called FICA taxes. Social Security tax is used to provide benefits to retired employees and their dependents and the disabled and their dependents. Medicare tax provides medical benefits for qualified individuals upon reaching age 65.

Exemption

While most employers must pay their share of FICA taxes, on occasion, an employer is exempt from both taxes. For example, churches and eligible church-controlled organizations that are opposed to FICA taxes due to religious reasons can claim an exemption from both taxes by filing Form 8274 with the IRS. Employees of exempt organizations are subject to self-employment, or FICA, taxes unless otherwise exempt. Ordinarily, employees who earn at least $108.28 for the year from an exempt organization are subject to FICA taxes.

Calculation

At the time of publication, you pay Social Security tax at 6.2 percent of gross income paid to each employee up to $106,800 for the year and Medicare tax at 1.45 percent of all compensation paid to each employee. Specifically, when an employee earns the annual wage limit, you do not owe any more Social Security tax on that employee for the year; however, Medicare tax applies to all wages paid. At the time of publication, an employee pays Social Security tax at 4.2 percent of wages up to $106,800 for the year and Medicare tax at 1.45 percent of all compensation.

Payment/Reporting

You pay all federal income tax and Social Security and Medicare taxes that you withhold from employees’ wages, plus your own share of FICA taxes, together to the IRS, generally semiweekly or monthly. You report all tax liabilities to the agency, typically quarterly on Form 941. If the total annual tax liability is $1,000 or less, the IRS may allow you to report annually on Form 944. You report Social Security and Medicare wages and taxes to the Social Security Administration annually on Form W-2 so the employee receives credit for Social Security and Medicare benefits.

References

• Social Security Administration: Frequently Asked Questions
• Social Security Administration: What is the Meaning of FICA
• IRS.gov: Understanding Taxes
• IRS.gov: Elective FICA Exemption - Churches and Church-Controlled Organizations
• IRS.gov: Publication 15 (Circular E), Employer's Tax Guide 2011
• IRS.gov: Employment Taxes