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>> This is Chapter 3 Learning Objective 3.
We're looking at the FICA taxable wage base.
The OASDI wages cap for 2012 is 110 one hundredth.
And that is the cap that is used in all of the examples
in this series of podcasts.
For 2013, it's 113 one hundredth.
At the time that this slide was written it said estimated.
But now that really is what it is.
And the Medicare health insurance wage is never capped.
So, since there's no ceiling,
the employers compute health insurance tax
on the full amount of wages.
And they'll withhold that also from the employee.
However, there is some legislation for 2013
that creates an additional .9 health insurance surtax
on taxpayers receiving wages in excess of 200,000 or 250,000
if they're married filing jointly.
Or a surtax and a surtax of 3.8 percent
on modified adjusted gross income in excess of 200,000
or 250,000 if married filing jointly.
The employer will not be matching the surtaxes
for this HI surtax here if that's what happens.
So in, this is just an interesting note, in 1950,
there were 16 workers paying into social security
for every one person collecting benefits.
By 2042 that ratio is expected to be 2 to 1.
So a lot of you, you might not ever get social security
because of this fact.
So when you calculate FICA, and when I'm talking
about FICA I'm talking about social security
and that Medicare health insurance, okay.
So here's an example.
Tamara earns 138,000 a year and is paid semi-monthly
on the 15th and the 30th.
Determine the FICA for the October 30th payroll.
Okay, so first you have to find what her year-to-date gross is
to see if she'*** the limit or not.
Because remember you only pay FICA
on the first 110 one hundred.
So, you take 138,000 and divide it by 24
because she's paid semi-monthly.
So that's her semi-monthly rate.
So how many payrolls were run before the 10/30 payroll.
You know if you have to, count on your fingers.
You've got January, you've got 2 in January, February, March,
April, May, June, July, August, September,
2 in each of those months.
So that's 18.
And then you have the October 15th.
So that's 19 payrolls before the peril that we're looking at now,
which is the one on 10/30.
So, you take her semi-annual times the 19 payrolls,
and this is what she's been paid to-date.
So she only has to pay FICA or OASDI
on the first 110 one hundred.
So take the difference between the two.
And so her tax on this 20th payroll,
the OASDI is only on the 850.
The employer pays 4.2 percent.
And again, if you're watching this after 2013,
or for years other than 2013, there's a good chance
that the employee, did I say the employer?
I meant the employee, that the employee
and the employer are both going to be paying the same rate.
I'm not going to redo all these videos for that reason.
Just know that whatever the rates are,
substitute them in here.
So, she would pay 3570, and the employer pays 6.2 percent,
so 5270.
For the HI, it's the full amount,
the full 5750 times 1.45.
And that's what it will be for each one of them, 8383, or 8338.
So the FICA for Tamera is the 35 plus the 8338.
And for the employer, the 5270 plus the 8338.
So here's another example.
Ahmed earns 175,000 a year.
And he's paid the first of every month.
What will be his FICA for the August 1st payroll?
So what do we calculate first?
Well, first we have to see how close is he to the limit?
So, he gets paid monthly.
So 175 divided by 12, it's 14,583.33 per paycheck.
Then you count the number of payrolls before today's payroll.
So if this is August 1st, we have January, February, March,
April, May, June, July,
that's seven payrolls before the August payroll.
So 7 times his monthly rate is 102,000.
So he's getting close to the limit, but he's not there yet.
But he's going to reach the limit on this seventh payroll
because if you add 14,000 to 102, it's up to 116.
So once he gets 110 one hundred he's over it.
So, he has to pay FICA on 8,000 at 16.69.
Because that will bring him up to the limit.
So, he will have 4.2 percent withheld on this 8,000 16.69.
And the employer has to pay 6.2 percent for 497.03.
Now let's look at the health insurance.
There is no cap on the health insurance.
So it's the full amount, the full 14583 times 1.45
for both the employee and the employer.
So these amounts are just added together here
so that you can see the employer is paying more.
The difference is that extra 2.2 for that OASDI.
Self-employment and independent contractors.
If an employee gets paid, excuse me.
If there's self-employment income of more than 400,
then you have to pay self-employment tax.
And basically the net earnings equals net income plus
distributive share of partnership income.
So, it might be that you have net income
from a sole proprietorship.
And if you're also part of a partnership or LLC,
whatever your share is of that income gets, is subject to FICA.
If you own more than one business,
like let's say you have a horse racing business,
and you also have a computer business, computer consultant.
Let's say the horse racing business is losing money.
But the computer business is making money.
You would net those two incomes together
and then pay social security on the net amount.
So, the, for 2013,
the self-employment taxes are 4.2 plus 1.45.
That's the OASDI for the employee.
And Medicare for the employee and the OASDI
for the employer plus Medicare for the employer, 13.3.
When the employee has to pay the same 6.2 that the employer pays,
this is 15, this ends up being 15.5.
And, I mean, yeah 15.5.
I just think of it as 15 percent.
I mean when I'm talking
to clients telling them what their self-employment tax is
because 15 percent pretty easy to calculate.
But it really is 15.5 in 2013.
So, it's possible they have W-2 and self-employment income.
Lots of people get wages
and then they have a business on the side.
Both the net earnings from your self-employment
and your gross earnings
from your wages count towards this cap of 110 one hundred.
And the self-employment income is reported on a Schedule C,
which is a summary of your revenues
and expenses from your business.
And then that Schedule C net income gets reported
on the Form 1040.
And also, you have to file a Schedule SC,
which is how the self-employment tax
and it shows how you calculate the self-employment tax.
And you're to make the self-employment taxes,
you're to do quarterly payments.
You have to estimate, because you don't know what it's going
to be.
So you basically estimate based
on the previous year's taxes what you think you'll owe
for the next year.
And then you're supposed to pay those every quarter.
Because when you're an employee, those get withheld
from every paycheck and forwarded
to the government throughout the year.
And the government wants its money throughout the year.
Doesn't want to wait until April 15th of the subsequent year
to get paid your taxes.
Plus they know people will spend it.
If they don't send it in,
they'll spend it for the most part.
So, calculating FICA.
If you have wages and self-employment earning.
Here's an example.
Celia's W-2 117,768.
And her self-employment income is 14,500.
Okay, how much does she owe?
How much FICA on the 14,500?
Well nothing for OASDI because she's already paid in the FICA
on the first 110 one hundreds.
So it's capped on the W-2.
However, she has to pay both her share and the employer,
because she's self-employed,
she's the employee and the employer.
So she has to pay HI on that.
And 1.4 times 2 is 2.9.
So it's the employer and the employee's share she has to pay.
So that's the total FICA that she will pay.
Here's another example.
Phillip makes 78,000 from his job,
and his self-employment income is 36.
How much is his self-employment tax going to be?
Well the, if you add these two together, it's more than,
I mean when I just first look at it I can see
that it's more than 110.
So I know he's reached the limit with his self-employment income.
So let's figure out how much
of his self-employment income is subject to the OASDI.
So 110 one hundred minus the 78
that has already had the FICA withheld from.
So he owes taxes on the next 32 one hundred.
So of this 36, 32 one hundred is subject to the OASDI.
And the 10.4 is, I got
to remember self-employment is the employee's share
and the employer's share.
So 4.2 plus 6.2.
And then the whole 36 is subject to the HI.
So the 1.45 for the employer and employee is the 2.9.
And that's subject to the whole 100, or the whole 36,000.
So you would add those two together to get the 438240.
So how do you get set up with the Social
Security Administration?
It's easy.
You do it online.
You can apply for a social security number online.
And right here is the link.
And you'll get it immediately.
They'll mail it to you or email it to you.
Of course if they email it to you, you get it immediately.
Or they'll mail it to you.
And if you're purchasing an existing business,
then the new owner needs and identification number.
So an identification number is to a company
as a social security number is to an individual.
It's their identifying number.
In all matters to do with the government you have to show,
you know, you got to have a separate identification number.
Social security numbers are required
for everyone that's employed or self-employed.
And basically children age 1 or older or claimed
as dependents have to have one.
So pretty much everybody has one now.
Also, you can complete a form W-7 for aliens who have
to file a tax return but are ineligible for social security.
This is called a taxpayer ID number.
I have a girlfriend who was here and earning money.
And actually she was here illegally for a long time.
She's not here anymore illegally.
But she was.
From Amsterdam.
And she wanted to start paying social security
so that she could kind of get going with the system.
So she filed for a taxpayer ID number, which is different
than the social security number.
And then she filed a tax return based on that number.
Okay.