The Social Security Administration has released the 2020 earnings threshold for withholding Social Security and Medicare taxes (often jointly referred to as FICA).
For 2020, if a household employee earns $2200 or more in cash wages, Social Security and Medicare taxes must be withheld. This is a $100 increase from a threshold of $2100 in 2019. Household employees are unique with the earnings threshold as most industries tax all wages, regardless of the amount earned.
Employees pay 7.65% for their portion of FICA, and employers match the 7.65% contribution.
Although the threshold represents the minimum that an employee must earn for FICA withholdings, it is important to note that once the threshold is met, taxes are owed on all wages (back to dollar 1) so please plan accordingly.
FICA taxes are never withheld for household employers who employ their spouse, their child who is under 21 years old, their parent (unless an exception is met), or an employee who is under 18 years old at any time during the year unless performing household work is the individuals principal occupation.
The Social Security tax pays for old-age, survivors, and disability benefits for workers and their families. The Medicare tax pays for hospital insurance.
Many household employers, particularly short-term employers, are not sure if they should withhold FICA as they don't know if their employee will reach the threshold. We advise our clients to start withholding FICA from the beginning - wages often accumulate more quickly than employers realize. Additionally, it is always easier to reconcile overcollection of taxes than going back to the employee and attempting to collect unexpected back taxes.
For more information on payroll taxes, please call one of our experts at 877-626-6924!