Highlights
- FICA and FUTA are two different federal taxes employers need to withhold and pay.
- Staying compliant with these payroll taxes is crucial to avoid hefty penalties and ensure your employees receive the benefits they deserve.
- At Resource Employers, we simplify tax compliance for your business with our expert payroll and tax services. Contact us to learn how we can streamline your processes!
What are FICA and FUTA? Both stand for federal laws that fund key government programs. FICA stands forFederal Insurance Contributions Act and funds Social Security and Medicare. FUTA stands for Federal Unemployment Tax Act and funds (you guessed it) unemployment benefits.
Accurately calculating and withholding FICA and FUTA taxes is crucial to avoid hefty penalties. However, these taxes can be tricky. This short guide simplifies everything with key requirements and tax rates, making sure you get it right.
Let’s dive in!
Federal Insurance Contributions Act (FICA)
The Federal Insurance Contributions Act (FICA) imposes a tax on both employees and employers to fund Social Security and Medicare. These programs provide benefits for retirees, people with disabilities, and their families.
Employers are required both to withhold social security taxes from their employees and to pay a matching amount. FICA taxes are withheld from most paychecks.
If you are an employer, you have two main responsibilities under FICA:
- Withhold the correct amounts of Social Security and Medicare taxes for your employees and send them to the government.
- Pay your matching share as the employer.
For social security, this amount is 6.2% withheld from the employee’s wages, up to a wage cap of $168,600 per employee (for earnings in 2024), as well as your matching amount. This limit changes every year, so make sure to check the Social Security Administration website for the latest information.
For Medicare, the amount is 1.45% withheld from your employee’s wages, as well as your matching amount.
Federal Unemployment Tax Act (FUTA)
The Federal Unemployment Tax Act (FUTA) imposes a tax on employers that goes toward funding state workforce agencies and programs. These programs include unemployment insurance, as well as 50% of unemployment benefits.
Employers must pay FUTA taxes annually, using Form 940.
FUTA rates are more complicated and less static than those for FICA.
As of 2024, the FUTA tax rate is 6.0% on the first $7,000 of gross earnings by a worker each year. This rate can be reduced by up to 5.4% through contributions to state unemployment programs (SUTA/SUI), which means the current minimum FUTA rate is 0.6%. However, the credit varies based on individual state regulations and other factors.
Simplify Tax Compliance with Employers Resource
As your business grows, staying compliant with ever-changing tax regulations can be overwhelming. But you don’t need to do it all by yourself.
At Employers Resource, we provide payroll processing and tax services to make payroll simple and stress-free for you, freeing you up to focus on higher-impact tasks for your business. We handle complex calculations, filings, and deadlines, ensuring your business remains compliant and avoids costly penalties.
Get a free quote today and see how we can streamline your payroll and tax processes!
