For 2017, the social security tax rate is 6.2% (amount withheld) each for the employer and employee (12.4% total). The social security wage base limit is $127,200 . The tax rate for Medicare is 1.45% (amount withheld) each for the employee and employer (2.9% total). There is no wage base limit for Medicare tax; all covered wages are subject to Medicare tax.
In addition to withholding Medicare tax at 1.45%, employers must withhold a 0.9% additional Medicare Tax from wages they pay to an employee in excess of $200,000 in a calendar year.
The Federal Unemployment Tax Act (FUTA), with State unemployment systems, provides for payments of unemployment compensation to workers who have lost their jobs. Most employers pay both a federal and a State unemployment tax. Only the employer pays the FUTA Tax ; it isn’t withheld from the employee’s wages.
For 2017, the FUTA tax rate is 6.0%. The tax applies to the first $7,000 employers pay to each employee as wages during the year. The $7,000 is the federal wage base.
Generally, employers can take a credit against the FUTA tax for amounts paid into state unemployment funds. The credit may be as much as 5.4% of FUTA taxable wages. If employers are entitled to the maximum 5.4% credit, the FUTA tax rate after credit is 0.6%. They are entitled to the maximum credit if you paid your state unemployment taxes in full, on time, and on all the same wages as are subject to FUTA tax, and as long as the state isn’t determined to be a credit reduction state.
Using Form W-4 to figure withholding.
To know how much federal income tax to withhold from employees’ wages, you should have a Form W-4 on file for each employee. Encourage your employees to file an updated Form W-4 for 2017, especially if they owed taxes or received a large refund when filing their 2016 tax return.
I created this blog to help understand certain basic aspects of U.S. tax law. Of course, each situation is unique and nothing that is on this site will ever replace the expert advice of a tax professional.
Please do not hesitate to contact me should you have any question