What is medicare withholding
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Medicare tax withheld is a payroll tax that is deducted from the employee's total pay. It is one part of the Social Security tax system. Both the Medicare tax and the Social Security tax make up the contribution towards the Social Security program. These payroll taxes are governed by the Federal Insurance Contributions Act. The amount of withholding is determined by the IRS. There is no wage base limit for Medicare tax. This withholding tax is a federal requirement.
Medicare tax withheld can be identified on the employee's pay stub by the designation FICA, Medicare tax. On the employer's side, the amount would be located on the balance sheet as a credit involving a current liability under payroll tax liability. It is a current liability because the employer is temporarily holding funds that do not belong to him. The debit side of the entry would be found under expenses located on the income statement.
Medicare tax withholding helps employees by financially preparing them for potential disability in the event they need it or upon reaching a specified age, which was set at 65 as of 2010. Because Medicare
tax was withheld from an employee's paycheck, the individual can qualify for Medicare benefits. Employers benefit by complying with legal requirements that are set forth by the federal government, thereby avoiding penalties and interest. The employer also benefits by maintaining efficient payroll records, which aid in making timely contributions.
The Medicare tax is considered a matching tax. The amount withheld from the employee's check is matched by the employer. This increases the amount that an individual will be collecting from his Medicare benefits. It also is important to note that the employer is acting as a collection agency for the IRS until these payroll taxes are submitted properly. The employer is placed in a fiduciary trust relationship.
As with any payroll tax, there are strict time frames that must be met as stipulated by the Internal Revenue Service. Upon processing the payroll, the employer will determine its matching amount immediately. The payroll date will determine when the payroll taxes need to be submitted to the IRS. This is outlined in Circular E. If these time frames are not abided by, punitive damages in the form of penalties, interest or possible audits may result.Source: ehow.com