Page 210 - Essentials of Payroll: Management and Accounting

Payr oll Taxes and Remittances
Social Security Taxes
Employers are required to withhold 6.2 percent of each employee’s pay,
which is forwarded to the government Social Security fund. The
employer must also match this amount, so the total remittance to the

government is 12.4 percent.This withholding applies to the first $84,900
of employee pay in each calendar year, though this number increases
regularly by act of Congress.
Example. The president of the Humble Pie Company is Elinor
Plump. She earned $185,000 in calendar year 2001. She expects to be
paid the same amount in 2002, and wants to know how much Social
Security tax will be deducted from her pay in that year, so she can
budget her cash flow. The calculation is as follows:

Total annual pay $185,000
Total annual pay subject to the
Social Security tax $ 84,900

Tax rate 6.2%
Social Security taxes to be withheld $5,263.80
If a company takes over another business, or purchases its assets, the
buying entity can include the year-to-date wages paid to the acquiree’s
employees in determining the amount of Social Security taxes withheld.
This reduces the amount of withholdings for those employees who

earn more than $84,900 per year, and reduces the amount of matching
taxes paid by the business.

Medicare Taxes
Employers are required to withhold 1.45 percent of each employee’s pay,
which is forwarded to the government Medicare fund. The employer
must also match this amount, so the total remittance to the government
is 2.9 percent.This withholding applies to all employee earnings during

the year, with no upper limit.

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