Question

Explain the procedures to be followed when computing the FICA tax on an employee's earnings. Do you think that there should be a limitation on the amount of earnings that are subjected to the OASDI portion of the SSN? Why or Why not?? Why is there a limit anyway? Explain!

Answer 1

The Federal Insurance Contributions Act (FICA) is a U.S. law that creates a payroll tax requiring a deduction from the paychecks of employees as well as a contribution from employers to fund the Social Security and Medicare programs

Payroll tax calculations have a huge impact on both the employer and the worker. These calculations impact the total wage expense incurred by the employer. The tax calculations also affect the worker’s taxable income, personal tax liability, and net take-home pay. Payroll taxes are made up of federal and state tax withholdings, Social Security taxes, and Medicare taxes. It’s critical that the employer and the worker understand how payroll taxes and withholdings are calculated.;

The procedure for calculating FICA tax is mnetioned below:

1. Firstly it is required to confirm whether each worked have completed a W-4.

2. Secondly, the worker needs to provide their employer their filing status and the number of allowances they are allowed to take. the allowances are used to calculate the amount held from gross pay.

3. Thirdly, requested information is required to enter to compute the correct withholding amount.

4. fourthly, we will calculate federal income tax withholding amount.

5. then we will calculate social security and medicare deductions.

6. Compute other state tax deductions.

7. Other deductions if any to be computed.

8. We wil use percentage method to calculate Federal Income tax withholding.

9. Finally we need to pay payroll taxes.

On Nov. 27, the Social Security Administration (SSA) announced that it had revised the maximum amount of earnings subject to the Social Security tax (the "taxable maximum") for 2018, replacing the amount that the SSA had originally announced in October.

"The reason given for this unusual change was that the wage base, which reflects national average wages, had to be recalculated when a good deal of salary data that had not been included in the original calculations was received after applicable deadlines," said Jeffrey S. Ashendorf, a benefits and compensation attorney with law firm FordHarrison in New York City.

Those whose compensation exceeds the previous $127,200 maximum will see a decrease in net take-home pay if they don't receive an annual salary raise that makes up for the payroll tax's bigger bite. Those higher costs could depress wage increases, economists note. Job positions and an employee's value are worth what an organization determines that they're worth (see link below, for instance), and an employer's share of payroll taxes are part of those costs. Consequently, compensation budgets should take into account the increased taxes that employers will pay for affected positions.