-
The primary difference between withholding tax and FICA is the how the taxes are used. Withholding tax is general revenue that supports overall government operations. FICA tax supports programs administered by the Social Security Administration.
Withholding Tax
"Withholding tax" is used to describe income tax payments that are withheld from an employee's paycheck. The employee provides information on Internal Revenue Service (IRS) Form W-4 to help the employer determine how much should be withheld.
FICA Tax
"FICA" stands for Federal Insurance Contributions Act and refers to payroll taxes deducted as an individual's contribution to social security. The deduction is a standard percentage that applies to everyone.
Similarities
Employers deduct both taxes from an employee's earnings as part of calculating the paycheck amount. The employer sends a payment for the employee's income tax to the IRS and a separate payment to the Social Security Administration.
Differences
Both the employer and the employee pay a share of payroll taxes. Unlike FICA, only the employee pays income tax withholding. Withholding is an estimate of your annual tax bill and you may file for a refund if taxes are overpaid.
Tip
Use the worksheet on page two of the W-4 Form to figure out whether you can further reduce the amount of withholding to meet your individual needs.
Source:
Resource:
Internal Revenue Service
Copyright 2023, Wired Ivy, LLC