Prepare for 2015 Payroll Tax Changes
Filed under: Payroll
About 10 million workers will pay higher FICA taxes in 2015, due to recent changes in the maximum taxable income. The Social Security Administration has announced that beginning on January 1, the maximum amount of taxable income has increased from $117,000 to $118,500 annually.
The Federal Insurance Contributions Act (FICA) tax covers Social Security and Medicare benefits through payroll withholding. Workers are taxed on the first $118,500 of their yearly income to pay for current and future beneficiaries. Taxes must be raised periodically as the number of Social Security beneficiaries and the cost of medical care increases.
It is worth nothing that the only change for 2015 is the maximum taxable income, or the amount that is subject to FICA taxes. The actual tax rate that employees pay for Social Security FICA will remain at 6.2 percent of taxable income, and the rate that employers pay will also remain at 6.2 percent.
As for the Medicare portion of FICA, the amount paid will remain at 2.9 percent. Half of this amount is paid by employers, and half is paid by employees. Unlike the Social Security portion of FICA, there is no limit on the amount of income which is subject to this part of the tax.
Self-employed workers are responsible for paying both the employee and employer portions of FICA taxes.
While tax increases are inevitable, they can cause a bit of a headache for employers who need to change their payroll withholding systems. As an employer, you need to do two things:
Notify any employees, who are affected by the new rules, that their payroll taxes will be changing
Adjust your payroll withholding to account for the new higher taxable maximum, according to FICA rules
For help implementing these new tax rules, give us a call at R&R Payroll and Bookkeeping Services. 951-296-0412
