7. How To Figure Social Security and Medicare Taxes(p8)

For wages paid in 2011, the employee social security tax rate is 4.2% on the first $106,800 paid to each employee. You must withhold at this rate from each employee and pay 6.2% as the employer. The Medicare tax rate is 1.45% each for the employer and the employee on all wages. You must withhold at this rate from each employee and pay a matching amount. Multiply each wage payment by these percentages to figure the tax to withhold from employees. For example, the social security tax on a wage payment of $355 would be $14.91($355 x .042) for the employee, and $22.01($355 x .062) for the employer. The Medicare tax would be $5.15 ($355 × .0145) each. Employers report both the employee and employer shares on Form 941-SS, 944-SS, or Form 943 (farm employment). See section 5 for information on tips.

Deduct the employee tax from each wage payment. If you are not sure that the wages that you pay to a farmworker during the year will be taxable, you may either deduct the tax when you make the payments or wait until the $2,500 test or the $150 test explained in section 6 has been met.

If you pay your employee's social security and Medicare taxes without deducting them from the employee's pay, you must include the amount of the payments in the employee's wages for social security and Medicare taxes. This increase in the employee's wage payment for your payment of the employee's social security and Medicare taxes is also subject to employee social security and Medicare taxes. This again increases the amount of the additional taxes that you must pay.

This discussion does not apply to household and agricultural employers. If you pay a household or agricultural employee's social security and Medicare taxes, these payments must be included in the employee's wages. However, this wage increase due to the tax payments is not subject to social security or Medicare taxes as discussed in this section. See Publication 15-A for details.

Social security and Medicare taxes apply to most payments of sick pay, including payments made by third parties such as insurance companies. For details on third-party payers of sick pay, see Publication 15-A.