About Your Employment Taxes 

 

The following is a summary of various employment taxes and related resources from the IRS:

Federal Income Tax and Social Security and Medicare Taxes

You generally must withhold federal income tax from your employees' wages. You withhold part of Social Security and Medicare taxes from your employees' wages and pay the employer's share of these taxes. To figure out how much to withhold from each wage payment, use the employee's Form W-4 and the methods described in Publication 15, Employer's Tax Guide and Publication 15-A, Employer's Supplemental Tax Guide (PDF).

For 2011, FICA taxes are collected at a rate of 5.65% (for employees) on gross earnings, broken down to:

• 4.2% for Social Security (Old-Age, Survivors, and Disability Insurance or OASDI) and
• 1.45% for Medicare.

Social Security’s Old-Age, Survivors and Disability Insurance (OASDI) is a payroll tax that pays for cash benefits to entitled beneficiaries.  Hospital Insurance (HI) tax pays for hospital benefits for people covered by Medicare.   

• The OASDI payroll tax is limited in the amount of earnings subject to tax for a given year. The same annual limit also applies when those earnings are used in a benefit computation.
• This limit generally increases each year with increases in the national average wage index.  This annual limit is called the contribution and benefit base.   For earnings in 2011, this base is $106,800.
• For wages paid in 2011, employees pay 4.2% and employers pay 6.2% in OASDI taxes. Thus, an individual with wages equal to or larger than $106,800 would contribute $4,485.60 to the OASDI program in 2011, and his or her employer would contribute $6,621.60. Self-employed workers pay 10.4% in OASDI taxes on income in 2011.

For Medicare's Hospital Insurance (HI) program, the taxable maximum was the same as that for the OASDI program for 1966-1990. Separate HI taxable maximums of $125,000, $130,200, and $135,000 were applicable in 1991-93, respectively.

• After 1993, there has been no limitation on HI-taxable earnings.
• Tax rates under the HI program are 1.45% for employees and employers, each, and 2.90% percent for self-employed persons.

or Log In