Free Consultation


Social Security Tax Withholding
The 2001 Social Security (FICA) tax contains two parts. The Social Security (Old Age, Survivors, and Disability Insurance) FICA tax is based on the first $87,900 paid at the rate of 6.2% with a maximum amount withheld of $5450 and is financed by the social security tax. Effective in 2005, wage base will increase to $90,000 with a maximum amount withheld of $5580. The Medicare (Medical Hospital Insurance) FICA tax is based on all earnings paid, at the rate of 1.45% financed by the Medicare tax. Each of these taxes is reported separately.

Generally, employers are required to withhold social security and Medicare taxes from their employees' wages and they must also pay an equal amount of these taxes. Certain types of wages and compensation are not subject to social security taxes. Generally, employee wages are subject to social security and Medicare taxes regardless of the employee's age or whether he or she is receiving social security benefits.

To know how much income tax to withhold from employees' wages, employers should have a Form W-4, Employee's Withholding Allowance Certificate, on file for each employee. When new employees star their work request them to give you a signed Form W-4. Make the form effective with the first wage payment. If a new employee does not give you a completed Form W-4, withhold tax as if he or she is single, with no withholding allowances.

A Form W-4 remains in effect until the employee gives you a new one. The amount of income tax withholding must be based on marital status and withholding allowances. The amount of income tax an employer withholds from regular pay depends on two things.

      1. The amount employees earned.
      2. The information they give to the employer on Form W-4.

Form W-4 includes three types of information that the employer will use to figure withholding.

How many withholding allowances you claim. (Each allowance reduces the amount withheld.)

Whether you want an additional amount withheld.

Whether to withhold at the single rate or at the lower married rate.

If the employees income is low enough that he will not have to pay income tax for the year, he may be exempt from withholding.

In general, an employee may claim exemption from income tax withholding because he or she had no income tax liability last year and expects none this year. Nevertheless, the wages are still subject to social security and Medicare taxes. If the employee claims exemption from withholding, the employer will not withhold federal income tax from his wages. The exemption applies only to income tax, not to social security or Medicare tax. A Form W-4 claiming exemption from withholding is applicable for only one calendar year. To continue to be exempt from withholding in the next year, an employee must file a new Form W-4 by February 15 of that year. If the employee does not give you a new Form W-4, the employer must withhold tax as if the employee is single with zero withholding allowances.

There are no differences among part-time employees, full-time employees, and employees hired for short periods for income tax withholding and social security, Medicare, and Federal unemployment (FUTA) tax purposes. It does not matter whether the worker has another job or has the maximum amount of social security tax withheld by another employer. Income tax withholding may be figured the same way as for full-time workers or it may be figured by the part-year employment method.
List of Cities and Counties in California