Understanding FICA Tax Rate and Wage base Limit 2022 & 2023

What is the Social Security Program?

The Social Security Program is to protect people who have lost their earnings due to retirement or disability and for survivors of deceased workers.

Monthly benefits are paid to these beneficiaries from the Social Security Fund. The funds to this program are raised primarily through the payroll taxes paid by the employer for their employees and self-employed individuals.

What is the Medicare Program?

The Medicare program provides health coverage for senior citizens or older adults aged above 65+. The program is funded by payroll taxes paid by the employees with matching contributions from their employer, and also self-employed individuals.

Additional Medicare Tax

An additional Medicare tax is applicable to employees whose wages exceed a certain threshold limit. The threshold limit is based on the employee’s filing status.
The additional Medicare tax rate is 0.9%. Below is the threshold limit based on filing status:

FICA Tax Rate 2022 & 2023

FICA tax is a combination of social security tax and Medicare tax. The taxes imposed on social security tax will be 6.2% and 1.45% for Medicare tax for each employee with matching contributions from their employer.

FICA Tax Wage Base Limit for 2022 & 2023

The Wage Base Limit is the annual limit on the wages earned for which the social security tax is paid. It is set on a yearly basis and adjusted based on the change in wage growth. This wage base limit will change every year.

Self-Employment Contributions Act (SECA) taxes for self-employed

The process of wage base limit is a little different for the self-employed as they act as both employee and employer.

Self-employed individuals pay a combined employer and employee amount towards social security taxes, which is at 15.3% up to $160,200 on their net earnings. They also pay a 2.9% Medicare tax on their entire net earnings. An additional Medicare tax rate of 0.9% is applicable to the threshold amount mentioned.

But, the self-employed individuals are allowed to claim the deduction for half of the social security tax to reduce their taxable income.

Other withholding taxes in payroll

Apart from social security and Medicare taxes, payroll taxes have other tax components mentioned below:

Federal Income Tax

The tax withheld from the employee paycheck towards the federal income tax based on Publication 15. The amount withheld will be based on the information the employee provided on their federal Form W-4.

State Income Tax

The tax withheld from the employee paycheck towards the state income tax. The amount withheld will be based on the information the employee provided on their state Form W-4.

Local Income Tax

The tax withheld from the employee paycheck towards the local income tax. The amount withheld will be based on the rates set by the local cities and jurisdictions.

FUTA Tax

The Federal Unemployment Tax Act (FUTA) is used to fund the federal unemployment program that benefits people who lose their job. No taxes are withheld from the employee paycheck towards FUTA tax. Only the employer contributes to this program.

SUTA Tax

The State Unemployment Tax Act (SUTA), quite similar to the FUTA tax, is to fund the state unemployment program that benefits people who lose their job. Employers contribute to this program, and in some states, employees are also required to contribute to this program.

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