In 1935, Congress passed the Social Security Act.
With the stroke of a pen, President Franklin Roosevelt signed legislation that created "a system of Federal old-age benefits" for American workers and the law was later amended to include disability benefits. Since then, employers and self-employed business owners have struggled to keep up with the financial and reporting requirements associated with the Social Security System.
In theory, Social Security provides financial security for both you and your workers. But that security comes at a price. In addition to the employer's contributions, your company is responsible for administrating the proper execution of social security payroll deductions in your workplace. Depending on the size of your labor force, this can either be a minor inconvenience or a major hassle.
Fortunately, there is an abundance of resources available to help you manage your company's social security requirements – starting with our fact sheet social security tips.
What is FICA?
FICA (Federal Insurance Contribution Act) taxes are paid by all workers, regardless of whether they are employees or self-employed business owners. The taxes collected through FICA fund Social Security and Medicare programs. Employers are responsible for withholding and remitting FICA for their workers while self-employed individuals usually remit FICA to the IRS through quarterly estimated tax payments.
Federal law requires employers to withhold 7.65% of each employee's income for FICA (subject to annual income caps). Employers are also required to match the employee's contribution, bringing the total FICA contribution to 15.3%. Since self-employed workers have no employer to match their FICA contribution, they are responsible for the full 15.3%.
FICA payments are typically made on a monthly basis, sent directly to the IRS along with a Federal Tax Deposit Coupon (Form 8109-B). Employers with less than $500 in withholdings and self-employed workers can avoid monthly payments and remit withholdings on a quarterly basis. Late payments are subject to penalties and interest.
Employers are responsible for keeping track of each employee's FICA records. The federal government requires your company to maintain an accurate record of the amount of each compensation payment that is subject to FICA, the FICA withholding for each payment and the reason for discrepancies between the two.