Calculate FICA Withholding
All employees must understand calculate the FICA (Federal Insurance Contributions Act) withholding to ensure the correct amount is being deducted. FICA is a mandatory, federal earnings-based tax that funds the OASDI (Federal Old Age, Survivors and Disability Insurance) programs and the Medicare or Hospital Insurance Programs. Withholding amounts vary each year so check accuracy at least annually.
Instructions
1. Determine if you are required to pay FICA tax. Any person who is in a standard employee/employer relationship is required to pay tax on all taxable income. Anyone completing work which is considered employment under FICA law or receives funds as compensation for time spent are also required to pay FICA taxes.
2. Calculate your total taxable income for the pay period. This includes all earning as part of an employee/employer relationship, such as tips, commissions, overtime, piecework earnings and any taxable benefits. Deduct any heath and dental premiums from this amount, as they are non-taxable.
3. Look up the current percentage taxation rate for OASDI and the Medicare or Hospital Insurance Program. These rates are updated and maintained by the Internal Revenue Service, complete with instructions on the method used to calculate the amounts to be deducted from your pay.
4. Multiply the current percentage tax rate against the taxable earnings for the period for both OASDI and Medicare or HI to calculate the amount of the deduction. The rates and limits differ between the two programs, although they are combined in the FICA tax amount.
5. Compare the amounts deducted from your payroll statement against your calculation to ensure that the correct limits and percentages are used.
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