If you are an employer who pays wages to your employees, the Federal Insurance Contribution Act (FICA) imposes federal social security taxes on both you and your employees. This is one of the three employment taxes that an employer needs to pay. (Other two being Federal Income Tax Withheld and Federal Unemployment Tax)
Federal social security tax is a tax paid by both employers and employees that funds the federal government's two principal social security programs:
- Old-age, survivor's and disabilities insurance (OASDI), and
- Hospital insurance (Medicare).
The employer is responsible for deducting from the employee's paycheck the amount of social security taxes that the employee owes. The employer is also responsible for paying an amount of social security tax that matches what the employee pays. Both payments are then submitted to the IRS usually quarterly by the employer.
There are basically two brackets for this federal social security tax. For 2005, a tax rate of 7.65% is imposed on wages up to $90,000. For wages above $90,000, the tax rate drops to 1.45%.
Remember that the employer must pay a matching amount of the employee¿s federal social security tax.
An employer for the purposes of federal social security tax is someone who has the right to control and to direct the way his/her workers work, both as to the final results and as to the details of when, where, and how the work should be done. It is not essential that the ¿employer¿ actually exercises this right to be considered an employer.
An employer may be any type of taxpayer (e.g. individual, partnership, corporation, etc.), and it even includes someone who is engaged in illegal business.
Religious orders and foreign subsidiaries of a domestic company (i.e. U.S. based company) are generally exempt from paying the federal social security tax.
Certain employers of agricultural or domestic workers are not required to pay the federal social security tax if they do not pay over a certain amount of cash wages to their workers.
Tax laws are complex and ever-changing. Although there are various tax preparation softwares on the market that may help you with your tax problems, they cannot provide the same level of service that an experienced and knowledgeable business attorney can. If you are unsure about what your payroll taxes or you need someone to represent you before the IRS, a tax attorney can help you.