26.8 FICA Withholdings

FICA withholdings are employee contributions for Social Security and Medicare coverage. Your employer is liable for the tax if he or she fails to make proper withholdings. The amount withheld is figured on your wages and is not affected by your marital status, number of exemptions, or the fact that you may be collecting Social Security benefits. On Form W-2, Social Security withholdings are shown in Box 4 and Medicare withholdings in Box 6.

Subject to FICA tax are your regular salary, commissions, bonuses, vacation pay, cash tips, group-term insurance coverage over $50,000, the first six months of sick pay, and contributions to cash or deferred (401(k)) pay plans or salary-reduction contributions to a simplified employee pension (SEP), SIMPLE IRA, or tax-sheltered annuity. Not subject to tax are the value of tax-free meals and lodgings (3.12), and reimbursements for substantiated travel or entertainment expenses or for moving expenses.

Excess Social Security and Railroad Retirement withholding.

If you have worked for more than one employer during 2012, attach all Copies B of Form W-2 to your return. Check to see that the total withheld in 2012 by your employers does not exceed your liability for Social Security taxes. The maximum 2012 liability for Social Security is $4,624.20, 4.2% of the first $110,100 of salary income. If too much was withheld, claim the excess on the applicable line in the “Payments” section of your 2012 Form 1040. On Form 1040A, the excess is included on the line for total tax payments; you cannot claim the excess on Form 1040-EZ.

Law Alert

New Medicare Tax in 2013 for High Earners

In 2013, employees will be subject to an additional Medicare tax of 0.9% on wages exceeding $200,000 if single, $ 250,000 if married filing jointly, or $125,000 if married filing separately. Self-employed individuals will also be subject to the additional 0.9% Medicare tax. See 28.4 for further details.

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Medicare tax is withheld at a rate of 1.45% on all salary and wage income.

Employees covered by the Railroad Retirement Tax Act (RRTA) receive Form W-2, which lists total wages paid and withholdings of income and Railroad Retirement taxes. Follow tax form instructions for claiming a credit for excess Railroad Retirement withholding.

If any one employer withheld too much Social Security or Railroad Retirement tax, you cannot claim the excess on your income tax return. You must ask that employer for a refund of the excess and if the employer refuses, get a record of the overpayment and file for a refund on Form 843.

Wages you pay to your spouse or child.

Wages you pay to your spouse for working in your business are subject to FICA tax and income tax withholding. Wages you pay to your child are subject to income tax withholding but if your child is under age 18 and your business is a sole proprietorship or a partnership in which the only partners are you and the child’s other parent, the wages are exempt from FICA taxes. Wages you pay to your child under age 21 or to your spouse for domestic work or child care in your own home are exempt from FICA.

Planning Reminder

Wages Paid to Household Employees

See Chapter 38 for FICA withholding on wages paid to household employees.

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