FICA Tax Payable
“FICA Tax Payable” is a liability account that represents the amount of FICA (Federal Insurance Contributions Act) taxes that a company owes to the government. These are taxes that the company has withheld from its employees’ wages and salaries, as well as the employer’s portion of FICA taxes, which are due to be remitted to the government.
As a reminder, FICA taxes are composed of two parts:
- Social Security tax: This tax provides benefits for retirees, people with disabilities, and families of retired, disabled, or deceased workers.
- Medicare tax: This tax is used to provide medical benefits for certain individuals when they reach age 65.
The FICA tax rate is 15.3% – split into 12.4% for Social Security and 2.9% for Medicare. This rate is usually split evenly between the employer and the employee.
So, for example, if a company has $1,000 in FICA Tax Payable, this means the company has collected $500 from its employees’ paychecks (if we assume a 50-50 split) and owes another $500 out of its own pocket, which it is due to remit to the government.
The amount in the “FICA Tax Payable” account will decrease once the company makes its periodic tax payments to the government. It’s important to note that failure to remit these taxes in a timely manner can result in penalties and interest charges for the company.
Example of FICA Tax Payable
Let’s say that you run a small business with one employee, Jane, who earns $4,000 per month. The total FICA tax rate is 15.3%, but as an employer, you’re only responsible for half of that, or 7.65%.
Each month, you withhold 7.65% of Jane’s salary for FICA taxes, which equals $306 ($4,000 * 7.65%). This $306 is composed of the employee’s share of Social Security and Medicare taxes.
However, as the employer, you are also responsible for an additional 7.65% contribution, which is another $306.
So, for the month, you have a total of $612 ($306 employee’s share + $306 employer’s share) in FICA taxes that you owe to the government. This amount would be recorded as a liability in your “FICA Taxes Payable” account.
At the end of the quarter, you need to remit these taxes to the government. If this is the only employee, and no other changes occurred, you would owe $1,836 in FICA taxes for the quarter ($612 per month x 3 months).
When you remit this payment to the government, you would decrease (credit) your cash account by $1,836 and decrease (debit) the FICA Taxes Payable account by the same amount, bringing that account back to zero until you again withhold taxes from Jane’s next paycheck. This example demonstrates how the FICA Taxes Payable account works and how it’s used in conjunction with payroll processing.
