FICA Payroll Deductions
FICA taxes are collected by the federal government from your paycheck to fund your contribution to the Social Security and Medicare systems. The authority for this tax comes from The Federal Insurance Contributions Act, otherwise known as FICA. FICA requires both employer and employee contributions to the system with certain exceptions. FICA has a wage base limit set by law that exempts earnings above a wage base limit from the tax.
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Employees Subject to Tax
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Both full- and part-time employees are subject to FICA taxes. Age is irrelevant, and you must continue to withhold the tax, even from employees who already collect Social Security benefits due to their age. With some exceptions, nonresident aliens are subject to the tax as are foreign employees of U.S. domestic corporations. However, if you are a U.S. citizen who works in a foreign country with whom the U.S. has an international Social Security agreement to eliminate double taxation and coverage, you may be exempt from the tax. If you are part of a religious sect that doesn't recognize insurance, you may also be exempt from the tax.
Amount of Tax
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In 2011, the employee portion of the payroll tax for Social Security was reduced to 4.2 percent of your gross income up to $106,800. The employer portion of the tax is 6.2 percent, unchanged from the 2010 rates. The employee portion of the Medicare tax is 1.4 percent, and the employer portion is 1.45 percent, both unchanged from 2010. There is no earnings limit on the Medicare tax; all of your income is subject to the tax.
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Filing Taxes
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Employment taxes must be filed electronically. You can have a third party file the taxes for you if you cannot meet this requirement. You must deposit the taxes either monthly or semiweekly. The schedule you are on is determined by the total tax liability you reported the previous year on Form 941 during the "lookback" period. The schedule is not related to when you pay your employees. If you file with Form 941, your deposit schedule is based on the total tax liability you had from July 1 through June 30 of the previous tax year. If your liability was $50,000 or less, you file monthly; otherwise, you file semiweekly. If you file with Form 944, your "lookback" period is the tax you paid on the second preceding calendar year; for example, for 2011 your "lookback" period is based on your tax liability from the 2009 calendar year. The tax liability levels and resulting filing requirements are the same as for 941 filers.
Penalties
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Aside from timely deposit penalties, which apply to all employment taxes, there is a trust fund recovery penalty that is assessed if you fail to deposit your FICA taxes or if you fail to withhold them altogether. The penalty due is the total amount of the trust fund taxes owed. This penalty can be imposed personally on employees considered by the IRS to be responsible for collecting, accounting for and paying the taxes, such as an officer or director of the company, the person who signs the checks, any partners, accountants, volunteers and others. The IRS applies the penalty if it determines that failure to pay the tax was a willful and intentional act.
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