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Stephen G.
Stephen G., Sr Income Tax Expert
Category: Tax
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Experience:  Extensive Experience with Tax, Financial & Estate Issues
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Many employers employees do not deduct FICA or medicare

Customer Question

Many employers for household employees do not deduct FICA or medicare withholding from the employees' pay, and I understand that is permitted. If no withholding is done, does the W-2 form show zero withholding? Is the amount of compensation shown in box #1 increased by the amount of tax that was paid by the employer?
Submitted: 1 year ago.
Category: Tax
Expert:  Stephen G. replied 1 year ago.

Here's how the gross-up for Employer paid Employee FICA/Medicare Tax is figured:

Do not withhold Social Security or Medicare taxes from gross wages if you choose to pay them for the employee. For example, at the time of publication, the employee is required to pay 6.2 percent of gross wages up to the annual wage limit in Social Security tax and 1.45 percent of all gross wages in Medicare tax. You pay 6.2 percent and 1.45 percent, respectively. Since you are paying the employee's share, you pay a total of 1.4 percent in Social Security tax and 2.9 percent in Medicare tax.

Include the amount of taxes that you pay in the employee's gross wages for income tax purposes but do not count them as Medicare or Social Security wages. Assume that you pay the employee $350 weekly for FICA purposes. This means that you pay $21.70 in Social Security tax and $5.06 in Medicare tax for the employee, plus your share of $21.70 in Social Security tax and $5.06 in Medicare tax. For federal, and if applicable, state income tax purposes, the employee's gross wages are $376.76 ($350 + $21.70 + $5.06), but for FICA purposes, his gross wages are $350.

Expert:  Stephen G. replied 1 year ago.

The amount that the Employer pays of the Employee's Social Security & Medicare Tax is reflected on the Employee's W2 as Employee withholding, just as if you actually withheld it from the pay (because you grossed-up the gross pay for these same amounts). The employee actually received the net of the Gross less their FICA & Medicare Tax.