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BUS-BOOK55-03 · Lesson 4 · 9 clock hours · practice

FICA Taxes: Social Security, Medicare, and Employer Match

Objective. Students will calculate employee and employer shares of Social Security and Medicare taxes, apply the additional Medicare tax threshold, and record both portions in a payroll register.

⚠ Pending professional review

This lesson, its worked examples and its practice questions has not yet been verified by a credentialed professional in the field or by a certification or approval body. It is a study draft and may contain errors. Do not use it as instructions for work on a job site or on live equipment. Always follow your instructor, your supervising professional, and current official references and regulations.

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What FICA Taxes Are and Why They Matter

The Federal Insurance Contributions Act (FICA) requires employers to withhold two taxes from each employee's paycheck and to pay a matching employer share: Social Security (officially Old-Age, Survivors, and Disability Insurance, or OASDI) and Medicare (Hospital Insurance). As a bookkeeper or payroll processor, you are legally responsible for calculating these amounts correctly, depositing them on time, and recording them accurately. Errors can result in IRS penalties and interest, so precision is non-negotiable.

Always handle payroll records as confidential. Never leave wage data visible on a shared screen or printed on an unattended desk. Payroll files must be secured — locked filing cabinets or password-protected digital folders — because unauthorized access to earnings information creates legal liability for the employer.

The Two FICA Components

Social Security tax is levied on wages up to an annual wage base that the IRS adjusts each year for inflation. Consult the current IRS Publication 15 (Employer's Tax Guide) for the exact figure in effect. Both the employee and the employer each pay the same Social Security rate on covered wages; the employer withholds the employee portion and remits both shares together. Once a worker's cumulative wages for the calendar year cross the wage base, Social Security withholding stops for the rest of that year.

Medicare tax has no wage cap — it applies to all covered wages. The employee and employer each pay the same Medicare rate. Because there is no ceiling, Medicare withholding continues every pay period regardless of how high earnings climb.

The Additional Medicare Tax

High-earning employees face an extra Medicare tax on wages above a statutory threshold. Employers are required to withhold this additional amount from the employee's wages once cumulative wages for the year exceed the threshold; however, there is no employer match on the additional Medicare tax — it is an employee-only obligation. The threshold differs depending on filing status (single, married filing jointly, etc.), but for withholding purposes employers use a single threshold amount regardless of the employee's filing status. Check IRS Publication 15 and the instructions for Form 8959 for the current threshold and rate. When in doubt, use the IRS website as your authoritative source rather than third-party summaries.

Calculating FICA Step by Step

For each pay period:

1. Determine gross wages for the pay period.

2. Check cumulative wages year-to-date (YTD) before this paycheck.

3. Social Security taxable wages this period = the lesser of (a) this period's gross wages or (b) the amount remaining before the employee hits the annual wage base. If the employee already exceeded the wage base, Social Security taxable wages = $0.

4. Multiply Social Security taxable wages × the current employee Social Security rate → employee Social Security withheld.

5. Mirror that amount for the employer Social Security contribution.

6. Multiply total gross wages this period × the current employee Medicare rate → employee Medicare withheld.

7. Mirror that amount for the employer Medicare contribution.

8. Check whether cumulative wages after this paycheck exceed the additional Medicare tax threshold. If yes, calculate the additional Medicare tax on the wages above the threshold (employee only) and add it to the regular Medicare withholding.

Recording FICA in the Payroll Register

A payroll register has separate columns for every deduction and employer cost. Typical FICA columns are:

The employee columns reduce net pay; the employer columns are an additional payroll expense over and above gross wages. When you total the register, the employee Social Security column should equal the employer Social Security column (assuming no one is over the wage base mid-column). Medicare employer amounts equal regular Medicare employee amounts, not including the additional Medicare tax.

Journal entry reminder: Debit Payroll Tax Expense for the employer share; credit separate liability accounts (Social Security Tax Payable, Medicare Tax Payable) that are cleared when you make the deposit.

Deposit Rules and Compliance

FICA taxes must be deposited according to the employer's deposit schedule — either monthly or semi-weekly, depending on the lookback period's tax liability. Late deposits trigger a graduated penalty. Always reconcile your quarterly payroll register totals to Form 941 before filing. IRS Publication 15 details the deposit rules and schedules; use the current edition because amounts and procedures can change annually.

Safety and Accuracy Reminders

Key terms8

FICAFederal Insurance Contributions Act; the law requiring withholding of Social Security and Medicare taxes from employee wages and a matching contribution from the employer.
Social Security wage baseThe maximum amount of an employee's annual wages subject to the Social Security portion of FICA; earnings above this ceiling are not taxed for Social Security. The IRS adjusts this amount annually.
Medicare taxThe Hospital Insurance component of FICA, applied to all covered wages with no annual earnings cap; both employee and employer pay the same rate.
Additional Medicare TaxAn employee-only surcharge on wages exceeding a statutory annual threshold; there is no employer match on this amount.
Employer matchThe employer's required contribution equal to the employee's Social Security and regular Medicare withholding; this is an additional payroll expense beyond gross wages.
Payroll registerA detailed record listing each employee's gross pay, all deductions (including FICA withholding), net pay, and employer payroll tax amounts for a given pay period.
Year-to-date (YTD) cumulative wagesThe total wages an employee has earned from January 1 through the current pay period; used to determine when the Social Security wage base or additional Medicare tax threshold is reached.
Form 941The IRS Employer's Quarterly Federal Tax Return on which employers report total wages paid, federal income tax withheld, and both employee and employer shares of FICA taxes.

Worked examples4

1. An employee earns $3,200 in gross wages this biweekly pay period. Her YTD wages before this paycheck are $18,000. The current Social Security rate is 6.2% (employee) and 6.2% (employer); the current Medicare rate is 1.45% each. The Social Security wage base this year is $176,100. Calculate employee and employer FICA for this pay period.
  1. Step 1 — Social Security taxable wages: YTD after this check = $18,000 + $3,200 = $21,200, well below $176,100. All $3,200 is subject to Social Security.
  2. Step 2 — Employee Social Security: $3,200 × 0.062 = $198.40
  3. Step 3 — Employer Social Security: $3,200 × 0.062 = $198.40 (mirror of employee)
  4. Step 4 — Employee Medicare: $3,200 × 0.0145 = $46.40
  5. Step 5 — Employer Medicare: $3,200 × 0.0145 = $46.40 (mirror of employee)
  6. Step 6 — Check additional Medicare tax threshold: $21,200 is far below the $200,000 threshold. No additional Medicare tax applies.
  7. Step 7 — Total employee FICA withheld: $198.40 + $46.40 = $244.80
  8. Step 8 — Total employer FICA expense: $198.40 + $46.40 = $244.80
Answer: Employee FICA withheld = $244.80 ($198.40 SS + $46.40 Medicare). Employer FICA expense = $244.80. No additional Medicare tax.
2. An employee's YTD wages before this biweekly paycheck are $174,500. His gross wages this pay period are $4,000. The Social Security wage base is $176,100. Social Security rate is 6.2% each side; Medicare rate is 1.45% each side. Calculate FICA for this pay period.
  1. Step 1 — Social Security taxable wages: Wage base remaining = $176,100 − $174,500 = $1,600. Only $1,600 of the $4,000 is subject to Social Security; the remaining $2,400 is above the wage base.
  2. Step 2 — Employee Social Security: $1,600 × 0.062 = $99.20
  3. Step 3 — Employer Social Security: $1,600 × 0.062 = $99.20
  4. Step 4 — Medicare taxable wages: Full $4,000 (no Medicare cap).
  5. Step 5 — Employee Medicare: $4,000 × 0.0145 = $58.00
  6. Step 6 — Employer Medicare: $4,000 × 0.0145 = $58.00
  7. Step 7 — YTD after this check = $174,500 + $4,000 = $178,500. Below the $200,000 additional Medicare tax threshold. No additional Medicare tax.
  8. Step 8 — Total employee FICA withheld: $99.20 + $58.00 = $157.20. Total employer FICA expense: $99.20 + $58.00 = $157.20.
Answer: Employee FICA withheld = $157.20 ($99.20 SS on $1,600 only + $58.00 Medicare on full $4,000). Employer FICA = $157.20. Social Security withholding stops for the rest of the year after this pay period.
3. A high-earning salaried employee receives $12,000 in gross wages this semimonthly paycheck. Her YTD wages before this check are $196,000. The Social Security wage base is $176,100 (she passed it months ago). Social Security rate 6.2%; Medicare rate 1.45%; additional Medicare tax rate 0.9% on wages above $200,000. Calculate all FICA amounts for this pay period.
  1. Step 1 — Social Security taxable wages: YTD $196,000 already exceeds $176,100. Social Security taxable wages this period = $0.
  2. Step 2 — Employee and employer Social Security = $0.
  3. Step 3 — Medicare taxable wages: Full $12,000.
  4. Step 4 — Employee regular Medicare: $12,000 × 0.0145 = $174.00
  5. Step 5 — Employer Medicare: $12,000 × 0.0145 = $174.00
  6. Step 6 — Additional Medicare tax: YTD after this check = $196,000 + $12,000 = $208,000. The $200,000 threshold was crossed during this pay period. Wages above $200,000 this period = $208,000 − $200,000 = $8,000.
  7. Step 7 — Additional Medicare withheld (employee only): $8,000 × 0.009 = $72.00
  8. Step 8 — Total employee Medicare withheld this period: $174.00 + $72.00 = $246.00
  9. Step 9 — Employer Medicare this period: $174.00 only (no employer match on additional Medicare tax).
  10. Step 10 — Total employee FICA: $0 + $246.00 = $246.00. Total employer FICA: $0 + $174.00 = $174.00.
Answer: Employee FICA withheld = $246.00 ($0 SS + $174.00 regular Medicare + $72.00 additional Medicare). Employer FICA expense = $174.00 ($0 SS + $174.00 Medicare; no employer match on the additional Medicare tax).
4. Over a four-week period a payroll register shows these biweekly payroll totals for the entire company: Week 1 gross payroll $85,000; Week 2 gross payroll $85,000. Assume all wages are below the Social Security wage base and below the additional Medicare tax threshold. Social Security 6.2%; Medicare 1.45%. Calculate total employee FICA withheld and total employer FICA expense for both pay periods combined.
  1. Step 1 — Total gross wages for two periods: $85,000 + $85,000 = $170,000.
  2. Step 2 — Employee Social Security: $170,000 × 0.062 = $10,540.00
  3. Step 3 — Employer Social Security: $170,000 × 0.062 = $10,540.00
  4. Step 4 — Employee Medicare: $170,000 × 0.0145 = $2,465.00
  5. Step 5 — Employer Medicare: $170,000 × 0.0145 = $2,465.00
  6. Step 6 — Total employee FICA: $10,540.00 + $2,465.00 = $13,005.00
  7. Step 7 — Total employer FICA: $10,540.00 + $2,465.00 = $13,005.00
  8. Step 8 — Total FICA remitted to IRS: $13,005.00 + $13,005.00 = $26,010.00
Answer: Employee FICA withheld = $13,005.00; Employer FICA expense = $13,005.00; Combined deposit to IRS = $26,010.00.
In class: Using current FICA rates and the annual Social Security wage base, calculate employee and employer FICA for six employees at different wage levels, including one employee approaching and one exceeding the Social Security wage base. · Construct a side-by-side comparison table showing total FICA cost per employee per pay period and year-to-date cumulative totals, identifying the pay period in which Social Security withholding stops. · Work a case study in which a high-earning employee triggers the additional Medicare tax; students calculate the correct combined Medicare withholding and write a short note explaining the rule to a fictional new payroll clerk.
Materials: IRS Publication 15, current FICA rate schedule (IRS website), payroll register forms, calculators, whiteboard for group totaling
Check: Payroll register section for FICA; all employee and employer amounts must be arithmetically correct and wage-base cutoff applied correctly — 90% accuracy required.

Practice check8

Answer each question, then check it. Nothing is recorded; this is your own practice.

Payroll compliance / AIPB Certified Bookkeeper
1. Which of the following correctly describes how the Social Security wage base affects FICA withholding?
Payroll calculation / AIPB Certified Bookkeeper
2. An employee's YTD wages before the current paycheck are $178,000. The Social Security wage base is $176,100. The employee's gross wages this pay period are $3,500. What is the employee Social Security tax withheld this pay period?
Payroll compliance / AIPB Certified Bookkeeper
3. Which statement about the additional Medicare tax is accurate?
Payroll calculation / AIPB Certified Bookkeeper
4. An employee earns $2,800 this pay period. All wages are below the Social Security wage base and below the additional Medicare tax threshold. Using a 6.2% Social Security rate and 1.45% Medicare rate, what is the total employer FICA expense for this employee this pay period?
Payroll compliance / AIPB Certified Bookkeeper
5. Where should a bookkeeper look to confirm the current Social Security wage base and FICA rates before processing the first payroll of a new calendar year?
Bookkeeping and payroll records / AIPB Certified Bookkeeper
6. In the payroll register, where are employer FICA costs recorded relative to employee FICA withholding?
Payroll calculation / AIPB Certified Bookkeeper
7. An employee's gross wages this pay period are $5,000. Her YTD wages before this check are $197,000. The additional Medicare tax threshold is $200,000 and the rate is 0.9%. The regular Medicare rate is 1.45%. What is the correct total employee Medicare withholding for this pay period?
Professional practice / office administration
8. Why is protecting payroll data treated as a compliance and security priority in the bookkeeping profession?
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