Payroll taxes, often called FICA taxes after the Federal Insurance Contributions Act, refer to the Social Security and Medicare taxes withheld from your paycheck. These taxes only apply to earned income, so you don't have to pay them on your unearned income like sales of stock or interest. The Social Security tax is limited in that it applies only up to a certain amount of income each year, although the amount changes with inflation. The Medicare tax, on the other hand, applies to all earned income.
Look up the current employee portions of the Social Security and Medicare taxes on the Social Security Administration's website. Also check to see the amount of wages to which the Social Security tax applies. For example, in 2012, the employee portion of the Social Security tax applies to up to $110,100 of income for the year and is 4.2 percent, while the Medicare tax applies to all income and is 1.45 percent.
Divide the Social Security tax rate and the Medicare tax rate by 100 to convert them to decimals. For example, divide 4.2 and 1.45 by 100 to get 0.042 and 0.0145.
Multiply the Social Security rate as a decimal by your income that does not exceed the annual limit. For example, if you haven't reached $110,100 of wages paid for the year, your entire paycheck is subject to the Social Security tax. Therefore, if you receive a $4,300 paycheck and the employee rate is 0.042, multiply $4,300 by 0.042 to find you'll have $180.60 withheld for Social Security taxes.
Multiply your entire paycheck by the Medicare rate expressed as a decimal to figure the Medicare tax withheld. In this example, if your paycheck is $4,300 and the rate is 0.0145, you'll have $62.35 withheld for Medicare taxes.
Add your Social Security taxes withheld and your Medicare taxes withheld to determine the total payroll taxes. In this example, add $180.60 plus $62.35 to find your payroll taxes total $242.95.
- Social Security Adminstration: Social Security & Medicare Tax Rates
- Social Security Adminstration: 2012 Social Security Tax Rate and Maximum Taxable Earnings
- Social Security Administration: What Is the Meaning of FICA?
- Medicare.gov. "What's Medicare?" Accessed April 27, 2020.
- Internal Revenue Service. "Topic No. 751 Social Security and Medicare Withholding Rates." Accessed March 29, 2020.
- Medicare.gov. "How is Medicare funded?" Accessed April 27, 2020.
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- Internal Revenue Service. "Publication 15, (Circular E) Employer's Tax Guide," Pages 2, 15. Accessed Feb. 2, 2020.
- Internal Revenue Service. "Self-Employment Tax (Social Security and Medicare Taxes)." Accessed April 27, 2020.
- U.S. Department of the Treasury. "The CARES Act Works for All Americans." Accessed April 27, 2020.
- United States Congress. "H.R.748 - CARES Act." Accessed April 27, 2020.
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Based in the Kansas City area, Mike specializes in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."