Payroll Unit st 1 Topic Mandatory Payroll Deductions

Payroll Unit st 1 Topic: Mandatory Payroll Deductions

Mandatory Payroll Deductions • There are 4 mandatory deductions from your paycheck. • First two deductions: • FICA • Medicare

• FICA and Medicare Payroll Tax • Born out of the necessity of a safety net for elderly and disabled Americans during the Great Depression

FICA and Medicare Payroll Tax • FICA • Stands for Federal Insurance Contribution Act • Provides benefits for retired workers and their dependents • Also provides benefits for disabled workers and their dependents • Medicare • Government service that provides healthcare for: • Senior Citizens • Disabled U. S. Citizens

FICA and Medicare Payroll Tax • Who has to pay FICA/Medicare taxes? • All employees must pay this tax except: 1. Any student that works for the school he/she attends • Student FICA Exemption • During the academic year, students who are enrolled for six or more credits and who are working on campus are exempt from FICA (Social Security and Medicare) deductions. 2. Foreign diplomats 3. Non-resident alien on a temporary visa

FICA and Medicare Payroll Tax • How are FICA taxes calculated? • FICA: 6. 2% of income paid by employee. 6. 2% of income paid by employer • What about self-employed workers? • FICA is capped in 2021 at $142, 800 (last year was $137, 700)

FICA and Medicare Payroll Tax • How are Medicare taxes calculated? • Medicare: 1. 45% of taxable gross (Employer 1. 45%) • There is no income cap on Medicare • In fact there is a 0. 9% surcharge on those earning over $200, 000

Potential Problems With Social Security • In 2016: Nearly 60 million retirees, disabled workers, spouses and children got monthly Social Security payments • By 2035, that number that is projected to grow to 90 million receiving benefits. • About 168 million workers currently pay Social Security taxes • In 1960, there were more than five workers for every person receiving Social Security. Today there are fewer than three. In 20 years, there will be about two workers for every person getting benefits.

FICA and Medicare Payroll Tax • The Very Good News: • We will all eventually collect social security benefits (hopefully) • Current average monthly payment is $1503. ($18, 036 per year). • Maximum possible benefit is $3011 per month ($36, 132 per year).

How to figure FICA Contributions • First find “Gross Pay per Period” • Gross Pay: The amount of money you “theoretically” make before any taxes or other deductions are taken out. • Take Gross Pay per Period and find 6. 2% of that number. This will be your FICA Social Security deduction • Take the same original Gross Pay per Period and find 1. 45% of that number. This will be your FICA Medicare deduction.