Page 134 - CalcBus_Flipbook

14-8 Payrolls, Wages and Commissions CH 14]

tax rate of (2.9% + 0.9% =) 3.8% on gross income which is a total (FICA) tax for Social
1
Security and Medicare of (12.4% + 2.9% + 0.9% =) 16.2%.
The sum value of these deductions are sent to the Internal Revenue Service (IRS)
through a bank that is an authorized federal depositary.

2
The major social security benefits to the worker or the worker's survivors are :

1. Retirement Benefits: Monthly income payments to the worker beginning at
age 67. Reduced payments are payable as early as age 62.
2. Disability Benefits: Monthly payments to the worker who is under 65 years
of age and unable to work because of disability.
3. Survivors Benefits: Payment of burial and monthly benefits to the surviving
family of a deceased worker.
4. Medicare: Health insurance benefits to those who are over 65 years of age
whether or not the insured worker has retired.
5. Congress borrows from the Social Security fund and pays an interest rate of
1% or less as they dictate under legislation authorizing the loan from Social
Security.

The amount to be withheld from the employee's earnings can be found by multiplying
the earnings that are subject to the tax by the current social security rate.
A social security tax table, as provided by the Internal Revenue Service, guides the
employer in calculating the amount of tax to be deducted from the employees’ gross pay,
and the employers mandated matching value.

Example A: Steven Tyler earned $138,000 this past year. (a) Calculate the Amount of
Social Security tax and Medicare Tax (FICA) he paid as an individual and (b)
determine his net pay. (c) Total Social Security and Medicare tax and
Employer match. Note: The Social Security Tax plus (+) Medicare Taxes as
applied are the FICA taxes deducted from wages.

Solution algorithm A:
Social Security tax: $132,900 x 6.2% = $8,239.80 (Social Security tax has a limitation)
Medicare Tax: $138,000 x 1.45% = 2,001.00 (No cap on Medicare tax)
(a) Total Deduction = $10,240.80 Employee FICA

Gross Wages: $138,000.00
Less S.S. and Med Tax: $ 10,240.80
Net Pay (Take home): (b) $127,759.20

Employer/employee Match Taxes
Social Security $8,239.80+ $8,239.80 = $16,479.60
Medicare $2,001.00 + $2,001.00 = + $ 4,002.00
Total Tax paid Employer/Employee (c) = $20,481.60 Total FICA paid
Note: If you are self employed, then you send the total Employer/employee Match Tax to
the IRS as you are both employer and employee.

Example B: Kathleen Bills earned $238,000 this past year. (a) Calculate the Amount of
Social Security tax and Medicare Tax (FICA) she paid as an individual and (b)
determine her net pay. (c) Total Social Security and Medicare tax and
Employer match. Note: The Social Security Tax plus (+) Medicare Taxes as
applied are the FICA taxes deducted from wages.

1. Source: “Employer’s Tax Guide, (Circular E)” Publication 15, Department of the Treasury, Internal Revenue Service, 2019.
2. Source: https://www.ssa.gov/oact/progdata/nra.html, last visited 30 April 2019.

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