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Federal Insurance Contributions Act (FICA)

All employers must collect withholding taxes

Under IRC § 3402 every employer must deduct and pay over withholding taxes for all employees (including religious organizations and governments). Employee status is generally determined on common law principles.

FICA imposes a tax on employees and employers measured by the amount of wages paid. There are 2 components:


"Wages" for employee are subject to withholding when paid for by the employer and actually or constructively received, including non-cash compensation.

The employer is liable for the employee’s portion WHETHER OR NOT WITHHELD, but is indemnified against claims and demands of employees for amounts paid over to the government.

Employer liability

Independent contractors

An employer’s liability for the employee’s portion for persons treated as independent contractors is limited under § 3509 to:

Erroneous treatment as non-employee

Liability is determined under IRC § 3509 for erroneous treatment as non-employee – 1.5% (3% if certain reporting requirements disregarded) of wages.

The liability is the amount that should have been withheld, but subject to credit for amounts actually paid by the employee.

Inadvertent failure to withhold

IRC § 6205 provides RELIEF for INADVERTENT failure to withhold if a timely supplemental return is filed and the tax is paid (interest and penalty free).


"Deemed" employers are persons having legal control over payment of wages other than actual employer – IRC § 3401(d)(1) (creditor, bankruptcy trustee, union, etc.).

"Authorized" agent – IRC § 3405

"Third party payors" – IRC § 3505(a) (lender, surety etc.) – person advancing funds to enable employer to pay wages if 1) knows advances will be used to pay wages; and 2) knows employer does not intend to or is unable to pay tax (i.e., "net" wage loans) (limited to 25% of amount supplied – court cases say the limitation includes interest

Amount of withholding

The amount of withholding is determined based on the employee's W-4 declaring the number of allowed exemptions and allowances, and may include the following methods: