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Video instructions and help with filling out and completing Additional medicare tax withholding

Instructions and Help about Additional medicare tax withholding

In this presentation we will take a look at the calculation for Medicare tax for more accounting information and accounting courses visit our website at accounting instruction dot info here we are on the payroll register we have our two employees Bill and Pam we have over here the regular pay the overtime pay and then the total earnings when looking at the calculation for Medicare we're going to be looking at the earnings for Medicare which could differ from the earnings for the total earnings so remember when we look at the total earnings that's of course the regular pay and the OT pay when we start to calculate the payroll taxes then we may have to adjust the earnings for example fi T is going to be reduced possibly by things like a 401k plan or a retirement plan and a cafeteria plan the OASDI or Social Security is going to have a cap which is the major component as well as possibly being reduced by something like a cafeteria plan the H I which is part of FICA is going to be different than the OASDI or the Medicare will differ from the OASDI and in this case there's no cap so that's the major difference between the two types of wages in for the FICA taxes so for the H I wage we're going to reduce it just by the cafeteria plan the difference then between the Medicare wages here and the total earnings up here will be the cafeteria plan so in this example then the seven 56.5 total earnings minus the 500 6.5 medicare earnings is 250 that then would be the cafeteria plan here like the health insurance type plan so that's going to be the major difference that could be there between total earnings and the H I or Medicare earnings note that that's different from the OASDI which has this cap which is a major component of the OASDI or Social Security now we'll do the calculation we're going to start with the total here and calculate the total for the employer and employee portions of H I or Medicare and then we'll go back and calculate each individual component and see that they will line up the same way so first we're gonna take the total if we take the total H I three thousand nine ten thirty five times the rate 1.45% or 0.01 four or five we get two fifty six dollars and seventy cents if we do that for again for the employer portion h i wages times the point one point four five or 0.01 four or five gives the 56:17 then if we add those two up we come up with the one thirteen forty so this is the employer and employee portion we can come up with those same numbers if we do this by an employee by employee basis bill and Pam bill and Pam respectively so we'll take the 506 fifty.

FAQ

What is FICA Med?
That's the Medicare portion of the taxes withheld from paychecks in the US under the Federal Insurance Contributions Act (FICA). As explained on the IRS website:Taxes under the Federal Insurance Contributions Act (FICA) are composed of the old-age, survivors, and disability insurance taxes, also known as Social Security taxes, and the hospital insurance tax, also known as Medicare taxes. Different rates apply for these taxes.The current tax rate for Social Security is 6.2% for the employer and 6.2% for the employee, or 12.4% total. The current rate for Medicare is 1.45% for the employer and 1.45% for the employee, or 2.9% total. Only the Social Security tax has a wage base limit. The wage base limit is the maximum wage that is subject to the tax for that year. For earnings in 2022. this base is $118,500. There is no wage base limit for Medicare tax. All covered wages are subject to Medicare tax.In tax years 2022 and later, Additional Medicare Tax applies to an individual’s Medicare wages that exceed a threshold amount based on the taxpayer’s filing status. Employers are responsible for withholding the 0.9% Additional Medicare Tax on an individual’s wages paid in excess of $200,000 in a calendar year, without regard to filing status. An employer is required to begin withholding Additional Medicare Tax in the pay period in which it pays wages in excess of $200,000 to an employee and continue to withhold it each pay period until the end of the calendar year. There is no employer match for Additional Medicare Tax. Topic 751 Social Security and Medicare Withholding Rates
How much payroll-related tax does an entrepreneur have to pay when hiring someone in the USA?
A business pays FICA and Medicare tax on employee wages and also pays state and federal unemployment taxes.  There are also some individual cities that have a local employment tax, but those situations are rare.In addition to the taxes that the employer pays, you are required to withhold employee's share of FICA/Medicare tax and federal and possibly state income tax withholding and remit those taxes to the federal and state government.
What is a payroll tax?
Payroll taxes are used to support federal, state and local governments so that they can provide everyday services and protection. The money is used for Social Security, Medicare, defense, education, energy, natural resources, foreign aid, transportation, agriculture, human services and other items like paying interest on our national debt. Here’s a quick breakdown of U.S. taxes: Federal Income Tax• This is applied to all forms of earnings that make up an employee’s taxable income. FICA • FICA or Federal Insurance Contributions Act is made up of Social Security and Medicare taxes. Both the Social Security tax and the Medicare tax is paid by the employee and matched by the employer. State and Local Taxes • These vary widely. Most states, with just a few exceptions, impose a state tax. Local taxes are determined by city, county or school district. If you’re a small business owner, you probably know that handling all of these taxes and submitting them on time is not an easy task. Many businesses decide to outsource payroll so they can focus on what they do best. If this sounds like something you’d like to look into check out SurePayrollfor a quote.
What payroll deductions are required by law?
These are the mandatory payroll deductions for taxes:Federal income taxState taxesLocal (city, county) income tax withholding in some areas. (Other local taxes can include school district taxes, community college taxes, state disability or unemployment insurance, for example.)The second set of mandatory payroll deductions are for FICA (Federal Insurance Contributions Act) taxes that include:Social security taxes andMedicare tax withholding.
Tax Avoidance and Minimization: What can I do to prevent the U.S. government from taking 50% of my bonus checks?
Bonuses are, by IRS rule, always taxed at a 25% federal income rate. Your marital status and number of exemptions only made a difference for regular pay, not "supplemental wages":The IRS defines supplemental wages as compensation paid in addition to the employee’s regular wages that includes, but is not limited to, severance or dismissal pay, vacation pay, back pay, bonuses, moving expenses, overtime, taxable fringe benefits, and commissions.(Supplemental Tax Withholding)In addition, you are subject to Social Security tax withholding of 6.2% until your cumulative wages for the year reach $118,500 (for 2022 -- the limit is adjusted for inflation each year). All wages are subject to Medicare withholding of 1.45%. So, if you haven't hit your SS cap, federal taxes will add up to 32.65%.That's only a third of your paycheck, not half. Perhaps some of the money went to state or local governments. Or perhaps your payroll department messed up and accidentally processed the bonus as regular wages. If they taxed you as if you were making $50,000 every two weeks, for example, then they'd withhold income tax at the top 39.6% rate. In that case, you should talk to your payroll department and see if they can fix their accounting.
Why is our federal tax withholding wrong each year?
Concretely - because if you are both filling out the W4 as married filing jointly with zero allowances, may will still be under-withheld unless you have significant deductions because the IRS always assumes the income on your W2 is your only income when it computes your tax withholding rate. For married people usually a higher rate should apply. You don’t have any control of this, unfortunately.Its a little unusual for someone with a family to be in this situation, but its possible if you don’t own a home and live in a state with very low taxes and your income is in a higher bracket. If you actually do have a mortgage or pay state taxes you probably want to look at whether you’re claiming all your deductions.If you can’t reduce your taxes, you should withhold extra money from your paychecks or file quarterly taxes. If your income is predictable, there’s a space on the W4 to enter the extra amount to withhold. The IRS does provide a worksheet to figure this out, which works okay as long as you don’t owe AMT, capital gains or additional medicare taxes. If you do owe any of those or have any other unusual tax situation, you need to figure it out yourself or hire a real tax accountant.In the abstract - this is because the US system of tax withholding places all the onus on the taxpayer to figure out what is going on, penalizes if they get it wrong, and makes it absurdly hard to get right.
How do I know the percentage that I have to pay for social medicare taxes from my paycheck?
Social Security is 6.2% of the first $128,400 of wages you are paid by your employer; nothing thereafter.Medicare is 1.45% of the first $200,000, and 2.35% of anything over $200,000. (That “additional Medicare tax” • the extra 0.9% on wages over $200K • is not “matched” by an employer tax. Plus, if you file married/joint, you only owe that tax on wages over $250K; your employer still has to withhold on wages over $200K, but you will get a credit on your tax return for the “excess.”)
How can I calculate exactly how much total state/federal/social security will be deducted for my paychecks?
tax law is very complicated and the answer to this question isn't very easy.If you're in the U.S., then you can use Form 1040, to calculate tax estimations. Each Sate will have its own tax law so you will need to look at the generic tax form from the state in which you reside to make a tax estimation.It also is crucial whether or not you are employed through a W-2 or through a 1099.If you're on a 1099, you will need to make quarterly tax estimation payments. Of which you will need to pay 90% of your actual taxes by the end of the year. Meaning, When you do your tax returns, the amount of taxes that you actually owe might be different than the estimations you have already paid. in which case, If you have paid 9,000 USD in estimations and your actual tax return rate calls for 9,500 USD, then you will have paid in 95% of what you owe, and you will have to pay the remaining 500 USD. IF you are not within that 90% then you will be penalized for making late payments. Also if you're on a 1099 you will also have to pay a Self-Employment Tax.If you're on a W-2 then your employer will automatically deduct your tax estimation payments based upon the number of allowances you put on your W-4. The point is, actual tax rates are not easy to estimate. Your annual income will not always be your adjusted gross income, or even your taxable income. So it is difficult to say what your actual taxes will be until you go through tax forms.
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