On October 23, 2014, the Social Security Administration announced that effective January 1, 2015, there will be changes in the FICA and Medicare payroll tax rates. Make sure that you revise your payroll software and/or adjust your calculations to cover the change in the 2015 amounts. The beauty for 2015 is that there is NO change in the percentages.
Payroll taxes are made up of 2 components. The first component is the Old-Age Survivors and Disability Insurance (OASDI). It remains at 6.2% of taxable earnings for 2015 which equals the 2014 percentage amount. However the cap on which this portion of the tax is applied will increase to $118,500 up from the 2014 amount of $117,000. The 6.2% is paid by both the employee and the employer for a total combined contribution of 12.4%.
The second component is for Medicare Hospital Insurance. This percentage also remains unchanged from 2014 to 2015 at 1.45%. Continuing with prior years, there is NO earnings cap on taxable earnings. The tax is paid by both the employee and the employer for a total combined contribution of 2.9%.
For “high income” employees, there is an additional Medicare tax of 0.9% on taxable earnings. This 0.9% tax is accessed on taxpayers who are married filing a joint return earning more than $250,000, single and head of household taxpayers earning more than $200,000, and taxpayers that are married filing separately earning more than $125,000. The 0.9% is IN ADDITION TO the 1.45% Medicare tax rate for a total Medicare tax of 2.35% for earnings in excess of the applicable floor. This is paid by the EMPLOYEE ONLY.
An example of the calculation for the tax on a high income employee who is married and filing a joint return is as follows:
Total taxable earnings $300,000
Earnings floor $250,000
Excess earnings $ 50,000
Tax rate 0.9%
Additional employee tax $ 450
For additional information on this, or any other questions, please contact me.