Medicare Taxes
Definition:
If you’re preparing your employees’ paychecks yourself, you needto be aware of the deductions you must make as set forth by thefederal government. You must withhold Social Security and Medicaretaxes–these are known as FICA (Federal Insurance ContributionsAct) taxes. The FICA tax actually consists of two taxes: a 6.2percent Social Security tax and a 1.45 percent Medicare tax. Tocalculate the tax you need to withhold for each employee, multiplyan employee’s gross wages for a pay period by the tax rates. Inaddition, as an employer, you are required to pay a matching amountof FICA taxes on each of your employees.
Here’s how it works: If an employee has gross wages of $1,000every two weeks, you must withhold $62 ($1,000 x 0.062) in SocialSecurity taxes and $14.50 ($1,000 x .0145) in Medicare taxes, or$76.50. As an employer, you owe a matching amount as well, so thetotal amount in FICA taxes to be paid is $153. The maximum amountof wages currently subject to Social Security tax is $87,000. Thereis no limit on the amount of wages subject to the Medicare tax.
The IRS requires any business paying more than $200,000 annuallyin payroll taxes or other federal taxes to pay them through theElectronic Federal Tax Payment System (EFTPS). If you pay less thanthat amount, you can still deliver a check for payroll taxes owedwith your deposit coupons to their bank (the same bank as the checkis drawn on). The form to use is 8109 (Federal Tax Deposit Coupon).On each coupon show the deposit amount, the type of tax, the periodfor which you are making a deposit and your phone number. Youtypically pay these taxes monthly, depending on the size of yourbusiness. Approximately five to six weeks after you receive yourEIN, the IRS will send you the coupon book.
In addition to making your monthly payroll deposits, you arerequired to file Form 941 (Employer’s Quarterly Federal TaxReturn). This is a form that provides the government withinformation on the federal income taxes you withheld from youremployees’ pay as well as the FICA taxes you withheld and paid. Italso tells the government when the taxes were withheld so the IRScan determine if the federal tax deposit was made on time.