Social Security And Medicare Tax Rates 2021

How Fica Tax Or Withholding Tax Are Calculated

The amount of tax your employer withholds from your check largely depends on what you put on your Form W-4, which you probably filled out when you started your job. Here are some things to know:

• Form W-4 asks about your marital status, dependents and other factors to help you calculate how much to withhold. The less you withhold, the less tax comes out of your paycheck.

• What you put on your W-4 then gets funneled through something called withholding tables, which your employer’s payroll department uses to calculate exactly how much federal and state income tax to withhold.

• You can change your W-4 at any time. Just , fill it out and give it to your human resources or payroll team.

Calculating Fica Taxes: An Example

An employee who makes $165,240 a year collects semi-monthly paychecks of $6,885 before taxes and any retirement-plan withholding. Though Medicare tax is due on the entire salary, only the first $147,000 is subject to the Social Security tax for 2022. Since $147,000 divided by $6,885 is 21.3, this threshold is reached after the 22nd paycheck.

For the first 21 pay periods, therefore, the total FICA tax withholding is equal to + , or $526.70. Only the Medicare HI tax is applicable to the remaining three pay periods, so the withholding is reduced to $6,885 x 1.45%, or $99.83. In total, the employee pays $8,964.27 to Social Security and $2,395.98 to Medicare each year. Though it does not affect the employee’s take-home pay, the employer must contribute the same amount to both programs.

As mentioned above, those who are self-employed are considered both the employer and the employee for tax purposes, meaning they are liable for both contributions. In the example above, a self-employed person with the same salary pays $17,928.54 to Social Security and $4,791.96 to Medicare.

Social Security And Fica

Most employees and employers each pay Social Security and Medicare taxes on Social Security and Medicare covered wages. These taxes comprise FICA .

Social Security Portion of FICA

• The Social Security portion of FICA is 6.2% of the maximum taxable wages.
• If you reach the maximum payment, you do not pay any more Social Security tax until the next calendar year.
• The maximum taxable wage for Social Security is adjusted each year. Visit Social Security Administration site to learn more about your Social Security Contribution and Benefit Base.

Medicare Portion of FICA

• The Medicare portion of FICA is 1.45% for wages up to 200,000 and 2.35% for wages above $200,000.
• There is no cap on wages for the Medicare portion of FICA.

FICA Refunds

Find out about FICA Refunds as a result of the Doctors Council v. NYCERS court decision.

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Social Security Tax Limits

The government bases the annual Social Security tax limits on changes in the National Wage Index , which tends to increase every year. The changes are intended to keep Social Security benefits on track with current inflation.

Any income you earn beyond the wage cap amount is not subject to a 6.2% Social Security payroll tax. For example, an employee who earns $165,000 in 2023 will pay $9,932 in Social Security taxes .

Keep in mind, however, that there is no wage base limit for Medicare tax. While the employee is only subject to Social Security tax on the first $160,200, they will have to pay 1.45% Medicare tax on the entire $165,000. Individuals who earn more than $200,000 are also subject to a 0.9% additional Medicare tax.

The combination of the increase in the Social Security tax limit and the additional Medicare tax for high-earners could result in lower take-home pay. Unfortunately, that means workers who earned over $200,000 in 2022 are at risk of owing more taxes in 2023.

Here is an example of how the Social Security limit works:

Debt Ceiling: 3 Ways Your Finances Could Be Affected

The so-called debt ceiling the amount the U.S. government can borrow to honor its spending obligations may seem like an abstract political issue for congressional leaders to deal with, but millions of Americans could suffer very real-world financial hits if the conflict drags on.

On Thursday, the federal government reached the debt limit of $31.4 trillion, prompting U.S. Treasury Secretary Janet Yellen to invoke “extraordinary measures” that will allow the country to avoid an unprecedented default for at least the next few months.

Because U.S. debt is considered the bedrock of the global financial system party due to its stability a default could undermine economies worldwide. At home, many Americans would likely see a decline in their wealth as the stock market recoiled, bringing down the value of their 401 plans. Social Security beneficiaries and others dependent on government programs might not get their monthly checks.

“Not raising the debt ceiling can have significant consequences on the economy and on us,” Jill Schlesinger, CBS News business analyst, said on CBS Mornings. “We could see things like delaying Social Security checks. Maybe you won’t get your tax refund on time.”

Here are three ways Americans could feel the impact of the debt ceiling crisis on their personal finances.

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Other Payroll Tax Items You May Hear About

• FUTA tax: This stands for Federal Unemployment Tax Act. The tax funds a federal program that provides unemployment benefits to people who lose their jobs. Employees do not pay this tax or have it withheld from their pay. Employers pay it.

• SUTA tax: The same general idea as FUTA, but the money funds a state program. Employers pay the tax.

• Self-employment tax: If you work for yourself, you may also have to pay self-employment taxes, which are essentially the full load of Social Security and Medicare taxes. Thats because the IRS imposes a 12.4% Social Security tax and a 2.9% Medicare tax on net earnings. Typically, employees and their employers split that bill, which is why employees have 6.2% and 1.45%, respectively, held from their paychecks. Self-employed people, however, pay the whole thing. Because you may not be receiving a traditional paycheck, you may need to file estimated quarterly taxes in lieu of withholdings.

Net Investment Income Tax

The net investment income tax, also known as the unearned income Medicare contribution surtax, is an additional 3.8% tax applied to net investment income as of 2021. Like the additional Medicare tax, there is no employer-paid portion.

Net investment income may include taxable interest, dividends, nonqualified annuities, capital gains, and rental income. It does not include income that is already excluded for income tax purposes, such as tax-exempt municipal bond interest. Net investment income tax is applied to an individuals net investment income or the excess modified adjusted gross income over certain thresholds, whichever is less.

For example, lets say a married couple filing jointly earned $225,000 in wages. During the same tax year, the couple also received $50,000 in investment income, bringing their MAGI to $275,000. The net investment income tax threshold for married couples filing jointly is $250,000.

The couple is required to pay 3.8% tax on the lesser of the excess MAGI or the total amount of investment income . In this case, the couple would owe a net investment income tax of $950 .

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Tips For Tax Planning

• If you are looking to make charitable contributions, transfer some of your wealth or leave your estate to your heirs in the most tax-advantageous way, a financial advisor can help. Finding a qualified financial advisor doesnt have to be hard. SmartAssets free toolmatches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If youre ready to find an advisor who can help you achieve your financial goals, get started now.
• Its important to plan ahead for your income taxes so youll know what to expect. Learn more by using SmartAssets income tax calculator.

Supplementary Medical Insurance Trust Fund

This trust is largely funded by the premiums paid by people enrolled in Medicare Part B and Medicare Part D , but it is also funded by:

• Interest earned on the trust fund investments
• Funds authorized by Congress

The Supplementary Medical Insurance Trust Fund pays for:

• Medicare Part B benefits
• Medicare Part D prescription drug coverage
• Medicare Program administration costs

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Retirement Earnings Test For 2022

The retirement earnings test applies only to people below Social Security normal retirement age , which ranges from age 65 to 67, depending on year of birth. Social Security withholds benefits if ones earnings exceed a certain levelcalled a retirement earnings test exempt amountand one is below Social Security NRA. One of two different exempt amounts applies, depending on the year one attains Social Security NRA. These exempt amounts generally increase annually with increases in the national average wage index.

The Social Security Administration determines the exempt amount using procedures defined in the Social Security Act. For people attaining Social Security NRA after 2021, the annual exempt amount in 2022 is $19,560. For people attaining Social Security NRA in 2022, the annual exempt amount is $51,960. This higher exempt amount applies only to earnings made in months prior to the month of Social Security NRA attainment. For more information on the test, see the 2022 Social Security Changes Fact Sheet.

Understanding The Increase In Medicare Tax Rates For 2022

The Medicare tax rate is set to increase in 2022. This means that both employers and employees will have to pay more in taxes than they did in 2021. The increase is due to the new American Rescue Plan Act, which was signed into law in March 2021. This act increases the Medicare tax rate from 2.9% to 3.8%. This means that the total Medicare tax rate for 2022 will be 7.65%, with the employer and employee each paying half.

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Social Security And Medicare Taxes

The amount of social security and Medicare tax withheld from your pay appears in Boxes 4 and 6 of Form W-2Wage and Tax Statement. There is no limit on the amount of wages subject to the Medicare tax , but there is a maximum amount of wages subject to social security tax .

The maximum amount of wages subject to the social security tax each year:

Related Links

• High-income earners also pay an additional 0.9 percent in Medicare taxes on earnings above certain amounts. See Questions and Answers for the Additional Medicare Tax for more information.
• If you are self-employed, you must make estimated tax payments for social security and Medicare taxes. See the IRS Self-Employed Individuals Tax Center website for more information.
• See the Social Security Administration’s Fact Sheet PDF for more information.

Note that any link in the information above is updated each year automatically and will take you to the most recent version of the webpage or document at the time it is accessed.

The Foolish Bottom Line

Nobody likes paying taxes, but the payroll taxes in the U.S. fund some pretty important programs. And as a final thought, it’s entirely possible that one parts of the payroll tax could increase in the not-too-distant future, as both Social Security and Medicare face long-term funding shortfalls.

The Motley Fool has a disclosure policy.

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Social Security Tax Rates

Tax rates for Social Security’s two trust funds, the Old-Age and Survivors Insurance Trust Fund and the Disability Insurance Trust Fund, are shown in the table below.

The rates shown reflect the amounts received by the trust funds. In certain years, the effective rate paid by employees, employers, and/or self-employed workers was less than the rate received by the trust funds, with the difference covered by general revenue. See the footnotes for details.

Who Has To Pay Social Security Taxes

If you work as an employee in the United States, your employer will deduct Social Security taxes as part of your payroll. If you are self-employed, you are responsible for remitting your own Social Security taxes. Under both situations, most workers are required to contribute Social Security taxes up to IRS limits.

Under limited circumstances, some individuals may claim a qualifying religious exemption or temporary student exemption. Foreign government employees and nonresident aliens may also not be required to pay Social Security taxes. Lastly, individuals that don’t make enough money may also not end up paying Social Security.

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Ordering Employer Tax Forms Instructions And Publications

You can view, download, or print most of the forms, instructions, and publications you may need at IRS.gov/Forms. Otherwise, you can go to IRS.gov/OrderForms to place an order and have them mailed to you. The IRS will process your order as soon as possible. Don’t resubmit requests you’ve already sent us. You can get forms, instructions, and publications faster online.

Instead of ordering paper Forms W-2 and W-3, consider filing them electronically using the SSA’s free e-file service. Go to the SSA’s Employer W-2 Filing Instructions & Information webpage at SSA.gov/employer to register for Business Services Online. Youll be able to create Forms W-2 online and submit them to the SSA by typing your wage information into easy-to-use fill-in fields. In addition, you can print out completed copies of Forms W-2 to file with state or local governments, distribute to your employees, and keep for your records. Form W-3 will be created for you based on your Forms W-2.

Tax Informationfederal Insurance Contributions Act Withholding For Social Security And Medicare

As employers, state agencies and institutions of higher education are required by the Federal Insurance Contributions Act to deduct employment taxes from the wages of a state officer or employee. Employers must withhold a set percentage of an employees salary each pay period. FICA requires that the employer match the employees amount and contribute the money to a government account known as the Social Security Trust Fund. This fund provides retirement income, as well as disability insurance, Medicare and benefits for survivors.

The Social Security tax rate is 6.2 percent and the Hospital Insurance tax rate is 1.45 percent, for a total FICA tax rate of 7.65 percent. The combined employee-employer FICA tax rate is 15.3 percent.

NOTE: For 2011 and 2012 only, the employees tax rate for Old-Age, Survivors and Disability Insurance was lowered to 4.2 percent, while the employers rate remained unchanged at 6.2 percent. The Hospital Insurance tax rate remained unchanged for both employee and employer at 1.45 percent. This change made the FICA tax rate for employees 5.65 percent, and the combined employee-employer FICA tax rate 13.3 percent for 2011 and 2012.

Social Security tax is applied only up to a certain wage base, currently $142,800. Wage limits for the calendar year can be found at the U.S. Social Security Administration. There is no wage limit for the Medicare deduction.

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Arguments For And Against The Social Security Tax Cap

Proponents of increasing or eliminating the limit on earnings subject to the Social Security payroll tax argue that it would make the tax less regressive and be part of a solution to strengthen the Social Security trust funds. An analysis from the Congressional Budget Office estimated that phasing out the tax cap by subjecting earnings below the current taxable maximum and above $250,000, would have raised over $1 trillion in revenues from 2019 through 2028. Another argument is that removing the taxable maximum would adjust for the fact that higher-income individuals generally have longer life expectancies and thus receive Social Security benefits for a greater amount of time.

Opponents argue that increasing or removing the taxable maximum would weaken the link between the amount individuals pay in Social Security taxes and the amount they receive in retirement benefits. Opponents also contend that while low-income earners may pay a greater share of their income in Social Security taxes than those who are wealthier, they also receive a disproportionate share of government transfer payments that are not subject to the tax. Those opponents cite programs that have been created to at least partially offset the regressive nature of the Social Security payroll tax.

Nonpayroll Income Tax Withholding

Nonpayroll federal income tax withholding must be reported on Form 945, Annual Return of Withheld Federal Income Tax. Separate deposits are required for payroll and nonpayroll withholding. Nonpayroll items include the following.

• Pensions , section 403, and governmental section 457 plans), annuities, and IRA distributions.

• Military retirement.

• Indian gaming profits.

• Certain government payments on which the recipient elected voluntary income tax withholding.

• Dividends and other distributions by an ANC on which the recipient elected voluntary income tax withholding.

• Payments subject to backup withholding.

For details on depositing and reporting nonpayroll income tax withholding, see the Instructions for Form 945.

Distributions from nonqualified pension plans and deferred compensation plans. Because distributions to participants from some nonqualified pension plans and deferred compensation plans plans of tax-exempt organizations) are treated as wages and are reported on Form W-2, income tax withheld must be reported on Form 941 or Form 944, not on Form 945. However, distributions from such plans to a beneficiary or estate of a deceased employee aren’t wages and are reported on Forms 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. income tax withheld must be reported on Form 945.

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