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Employment law

FICA taxes

FICA Taxes

Taxes under the Federal Insurance Contributions Act (FICA) are composed of the old-age, survivors, and disability insurance taxes—also known as social security taxes—and the hospital insurance tax, also known as Medicare taxes. Different rates apply for these taxes.

Social Security and Medicare Withholding Rates

The current tax rate for social security is 6.2% for the employer and 6.2% for the employee, or 12.4% total. The current rate for Medicare is 1.45% for the employer and 1.45% for the employee, or 2.9% total.

Additional Medicare Tax Withholding Rate

Additional Medicare Tax applies to an individual's Medicare wages that exceed a threshold amount based on the taxpayer's filing status. Employers are responsible for withholding the 0.9% Additional Medicare Tax on an individual's wages paid in excess of $200,000 in a calendar year, without regard to filing status. An employer is required to begin withholding Additional Medicare Tax in the pay period in which it pays wages in excess of $200,000 to an employee and continue to withhold it each pay period until the end of the calendar year. There's no employer match for Additional Medicare Tax.

Wage Base Limits

Only the social security tax has a wage base limit. The wage base limit is the maximum wage that's subject to the tax for that year. For earnings in 2020, this base is $137,700. There is no wage base limit for Medicare tax. All covered wages are subject to Medicare tax.

In Texas, as in all states, FICA taxes are federal taxes and are consistent across the country, not varying by state. The FICA tax is composed of two main components: Social Security tax and Medicare tax. Employers and employees each pay 6.2% for Social Security tax on wages up to the wage base limit, which was $137,700 for the year 2020. For Medicare tax, both employers and employees pay 1.45% on all wages, with no wage base limit. Additionally, there is an Additional Medicare Tax of 0.9% that applies to an individual’s wages exceeding $200,000 regardless of filing status, which employers must withhold; however, there is no employer match for this additional tax. It's important to note that while these rates and rules are set at the federal level, employers in Texas must comply with these regulations when processing payroll.

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