Question

What determines the amount deducted from an employee’s wages for federal income taxes?

Short answer

Social security tax and Medicare tax are two factors that determine the amount deducted from an employee’s wages for federal income taxes.

1. Social Security tax was 6.2% of the first $118,500 the employee earns
2. Medicare tax is 1.45% of all amounts the employee earns.

Step-by-step solution

FICA Taxes

Employee FICA Taxes The federal Social Security system provides retirement, disability, survivorship, and medical benefits to qualified workers. Laws require employers to withhold Federal Insurance Contributions Act (FICA) taxes from employees’ pay to cover costs of the system. Employers separate FICA taxes into two groups:

(1) retirement, disability, and survivorship (social security taxes)

(2) medical (Medicare taxes)

The tax rate

Taxes for Social Security and Medicare are computed separately:

1. The amount withheld from each employee’s pay for Social Security tax was 6.2% of the first$118,500 the employee earns in the calendar year.
2. The Medicare tax is 1.45% of all amounts the employee earns, there is no maximum limit to Medicare tax. A 0.9% Additional Medicare Tax is imposed on the employee to pay more than $200,000 (this additional tax is not imposed on the employer, whereas the others are).