FICA (Federal Insurance Contributions Act) is a federal law that requires employers to withhold three taxes from their employees’ wages: 6.2% Social Security tax, 1.45% Medicare tax, and 0.9% for anyone who earns more than $200,000. In addition to FICA taxes, you must also cover unemployment taxes and workers’ compensation.
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Employer Payroll Tax Rates & Unemployment Insurance
| Percentage of Employee Wages | Income Cap on Taxes | Total Cost for Employee Earning $30,000 Annually | |
|---|---|---|---|
| Social Security | 6.20% | $132,900 (2019) $128,400 (2018) $127,200 (2017) | $1,860 |
| Medicare | 1.45% | Unlimited (no income cap) | $435 |
| SUTA | Typically 2.7%-3.4%+ | Typically $7,000-$10,900+ | $810-$1,020 |
| FUTA | Virgin Islands 2.4% | Virgin Islands $7,000 | Virgin Islands $168 |
| FUTA | All other states 0.6% | All other states $7,000 | All other states $42 |
| Workers Compensation Insurance | $1.00 per every $100 paid in wages, varies | N/A | $300 |
*Average new employer rates and other data retrieved from Employment Development Department and the IRS.
Based on the above chart, you could pay an average of $3,600 in FICA tax, unemployment tax, and workers’ compensation insurance for an employee earning $30,000 per year.
Note: Keep in mind that state unemployment rates will vary depending on how often you fire employees and how many of those employees who have been fired receive unemployment benefits. Each year, around November or December, you will receive your new rate in the mail. If you do not receive this information, you should contact your local employment development office to obtain it.
FICA Tax Rates (Social Security & Medicare)
Social Security and Medicare taxes are also known as FICA taxes. This makes up the bulk of payroll taxes you must pay as an employer. These FICA taxes are paid either monthly or bi-monthly and reported quarterly using Form 941. This is typically automatically facilitated by a payroll software like Gusto.
The two FICA tax rates for employers are:
- Social Security tax rate – You must pay 6.2% of employee salary/wages, up to a maximum wage of $132,900 (2019 tax year), $128,400 (2018 tax year), and $127,200 (2017 tax year).
- Medicare tax rate – You must pay 1.45% of employee salary/wages; unlike Social Security, there is no salary/wage cap.
Employers and employees each contribute 50% of the entire Social Security and Medicare tax (FICA tax). This means that the actual Social Security tax rate is 12.4% and the actual Medicare tax rate is 2.9%. However, employers are only responsible for paying 50% of these taxes and withholding the remaining 50% from employee paychecks.
Listed below are a couple of examples of how to calculate your FICA tax:
Social Security Tax Rate Example
Let’s assume that you have an employee who earned $135,000 for the year. Here is how you would calculate your employer share of Social Security taxes:
$132,900 X 0.062 = $8,239.80
Since this employee’s salary of $135,000 exceeded the salary cap of $132,900 for Social Security, your employer share of Social Security is based on 6.2% of $132,900—not the entire $135,000 that the employee earned for the year. Remember, however, that you pay these taxes either monthly or bi-monthly, stopping only after an employee has hit the $132,900 annual threshold.
Medicare Tax Rate Example
For Medicare, we used the total salary of $135,000 that was earned to calculate your employer share of Medicare. This is because unlike Social Security, there is no salary/wage cap on Medicare. Here’s how you would calculate your employer share of Medicare taxes for an employee who earns $135,000 annually:
$135,000 X 0.0145 = $1,957.50
Remember that Medicare taxes are also paid either monthly or bi-monthly. For step-by-step instructions on how to pay your FICA taxes and accurately report payments using Form 941, check out our FICA and Form 941 tax guide.
If you want to avoid manually paying FICA taxes and unemployment insurance, you can use a payroll service like Gusto. Their payroll software manages all aspects of payroll, including automatically paying all required payroll taxes. It costs as little as $45 per month and you can sign up for a free trial here.
Unemployment Insurance Tax Rates (FUTA & SUTA)
As an employer, you are also required to pay unemployment insurance at both the federal and state level for each of your employees. These are known as either federal unemployment tax (FUTA) or state unemployment tax (SUTA). These taxes are due annually and filed using Form 940; you pay this tax regardless of whether or not you actually have a former employee collecting unemployment.
Below is a detailed explanation of how state and federal unemployment insurance rates work:
State Unemployment Tax Rates
SUTA rates are set by the state for each employer. SUTA rates are generally based on the number of employees that you have fired and how many of those employees make unemployment claims.
Depending on the process established by your state, you will either receive your unemployment rate via snail mail or electronically sometime between October through December. Typical rates range from 2.7% to 3.4%+. This rate is effective beginning January 1 of the following year. For example, you will receive a letter sometime between October and December 2018, and that rate will take effect on January 1, 2019.
Federal Unemployment Tax Rates
The federal unemployment tax rate (known as FUTA) is a flat 6%. However, if you have paid your state unemployment taxes on time, your FUTA tax is reduced to 0.6%. The current exception to this rule is employers in the Virgin Islands. The Virgin Islands owe money to the federal government, so as a result, Virgin Island employers must pay 2.4% for FUTA tax.
FUTA tax is only assessed on the first $7,000 in wages for each employee. For the Virgin Island employers, this would result in $168 per employee ($7,000 X 0.024). For employers in the remaining U.S. states and territories, this would be $42 per employee ($7,000 X 0.006). FUTA taxes are filed on Form 940 and paid annually by all employers.
What Workers’ Compensation Insurance Is Required
In addition to the payroll tax obligations, small businesses are also required to carry workers’ compensation insurance. Workers’ compensation insurance covers your employees in case they are injured on the job. Every state (except for Texas) requires employers to carry workers’ compensation insurance.
In most states, workers’ compensation insurance is sold and underwritten by private companies, although some states require you (or allow you) to buy it from specific state-managed carriers. In general, workers’ compensation insurance costs are based on industry. The riskier the job, the higher the rate.
For example, the rate for a roofer is about $21.32 per every $100 in wages versus someone who works in an office like an accountant, whose rate is approximately 17 cents per $100 in wages. Rates will also vary by state, so be sure to check out our full guide to workers’ compensation insurance.
If you’re looking for a highly-rated insurance company to provide you with affordable workers’ compensation insurance, we recommend The Hartford. Get a free, no-obligation workers’ compensation insurance quote by completing this short online form.
FICA Tax Frequently Asked Questions (FAQs)
Below we have included answers to the most frequently asked questions about FICA taxes. If you don’t see your question, head over to our Fit Small Business Forum and post your question there. We answer hundreds of questions posted by small business owners like you every day.
Listed below are the most frequently asked questions about FICA taxes:
What Is the FICA Deduction on My Paycheck?
FICA is a mandatory payroll deduction for Social Security and Medicare taxes. The Social Security tax is 6.2% of your income up to a maximum income of $132,900 (tax year 2019), and the Medicare tax is 1.45%, with no maximum income limit.
What Is the FICA Rate for 2019?
The FICA tax rate for 2019 is 7.65% for employers. This is made up of 6.2% for Social Security tax and 1.45% for Medicare tax. Since employers share this tax equally with employees, these same tax rates also apply to the employee payroll deductions taken out for Social Security and Medicare taxes (also known as FICA taxes).
What Is the FICA Rate for 2018?
The FICA tax rate for 2018 is 7.65% for employers. This is made up of 6.2% for Social Security tax and 1.45% for Medicare tax. Since employers share this tax equally with employees, these same tax rates also apply to the employee payroll deductions taken out for Social Security and Medicare taxes (also known as FICA taxes).
What Kind of Income Is Subject to FICA Taxes?
“Generally, most wage and salary income is subject to FICA taxes, including regular pay, tips, overtime, and bonuses. Employee benefits are sometimes subject to FICA. For example, an employee’s own contribution to a 401(k) or other group retirement plan is subject to FICA, even though it can be exempt from income tax.”
– William Perez, Licensed Tax Professional & Staff Writer – Fit Small Business
“Generally, most wage and salary income is subject to FICA taxes, including regular pay, tips, overtime, and bonuses. Employee benefits are sometimes subject to FICA. For example, an employee’s own contribution to a 401(k) or other group retirement plan is subject to FICA, even though it can be exempt from income tax.”What Kind of Income Is Generally Not Subject to FICA Taxes?
“Income not subject to FICA includes health and dental insurance benefits, employer contributions to a group retirement plan, employee contributions to a dependent care flexible spending arrangement, contributions to health savings accounts, reimbursements made under an accountable plan, and wages paid to the owner’s children under age 18.”
– William Perez, Licensed Tax Professional & Staff Writer – Fit Small Business
The Bottom Line: FICA Tax
Whether you have just hired your first employee or you’ve had employees for a while, keeping up with new hire requirements can be overwhelming. One component of these requirements is that you adhere to and pay all necessary payroll taxes, like FICA tax. The best payroll software will automatically take care of this.
Another challenge you may encounter is finding affordable workers’ compensation insurance. We recommend The Hartford because they cater to small businesses like yours by offering affordable workers’ compensation insurance. Fill out this short form to request a free quote.
Kelly Cooper
We have a new business in TN. Is TN a state that we must take worker compensation out for our employee, we have 2 right now. If so does the company pay for it or is it deducted out their payrolls like Medicare and Social Security? Thank you for your help.
Laura Handrick
HI Kelly,
I’m in the process of writing an article that contains a state-by-state workers comp table and instructions on how to buy it. From what I see, unless you’re in construction, you don’t have to provide workers comp until you have 5 employees in TN. However, it’s not a bad idea to purchase it anyhow! In TN you purchase it through your insurance carrier (like any other business insurance) or, if you use a payroll provider They’ll often be able to set up and deduct workers comp for you. The best way to buy it is with a pay-as-you-go option, where they take out only the premium for that pay period, instead of requiring the entire premium up front based on your estimated annual payroll. If you don’t have a carrier, The Hartford is a good one for Workers’s comp — but first check with your payroll provider. For example, if you use Gusto or ADP, they’ll be able to get workers comp setup for you. And to clarify, it’s not something the employee pays for, it’s employer paid, but is based on the employee’s job role and payroll $. (Just to be confusing, some states do offer it from a state fund and process it similar to a an employer payroll deduction, but in TN, you purchase it yourself.)
Best!
Laura, HR Staff Writer
Chimene
What deductions come out of a paycheck for a nonunion construction worker?
Crystalynn Shelton
Hi Chimene,
If your employer is not taking out state and federal income tax then you must deduct those as well as Medicare and Social Security taxes. I have listed a couple of other great resources that might be helpful to you:
Guide to Basic Payroll Deductions: https://fitsmallbusiness.com/how-to-do-payroll-accounting/
Federal Labor Laws: https://fitsmallbusiness.com/federal-labor-laws/
Thank you for reading!
Crystalynn Shelton
Sjb
In the state of Kentucky do you still have to take workers comp out of employees payroll taxes even if you already paid the workers comp up front to your insurance company?
Crystalynn Shelton
Hello, unfortunately I am not familiar with the workers comp laws in Kentucky. Check out their website or give them a call for additional assistance: http://insurance.ky.gov/static_info.aspx?static_id=27&MenuID=88&Div_id=15.
Thank you for reading!
Crystalynn
Christine
The amount taken out for Social Security – is it always the exact same amount for employer and employee
Jeremy Marsan
Just about always. The only exception I’m aware of is for employees who earn over $200,000. These employees are required to pay an additional 0.9% Medicare surtax. Employers are not liable for this expense.
Brian Patterson
I was wondering, in Texas does a employer have to have workmans comp to with hold regular taxes in paycheck. I’m getting overwelded by what I owe the it’s at years end when he considers me sub contractor and doesn’t take taxes out. He says he can’t do it unless he has workmans comp. And it’s to expensive. Lost here.
Kal
you’ll find this useful re: workers comp in texas:
http://www.cbs.state.or.us/external/dir/wc_cost/map.html
Jeremy Marsan
Hi Brian. Ironically, Texas is one of the few states that do not require workers comp insurance for most small businesses. However, if your employer has a policy already, you would indeed have to be added to that policy if you wanted to switch from a contractor to a proper employee.