This Act authorizes the government to collect Social Security and Medicare payroll taxes. These taxes are sometimes referred to as contributions to the social security system, since they are eventually returned to tax payers. Currently, an employer must pay 6.2% of an employee’s first $102,000 (which varies each year) in annual earnings, which are matched by the employee. Consequently, the total contribution to Social Security by both parties is 12.4%. The same calculation applies to a 1.45% Medicare tax rate that is based on all taxable pay, with no upper limit.
The Act allows no deductions from the base wage when calculating the total tax due for Social Security or Medicare taxes. Also, a company must retain payroll records for four years from the later of the due date or payment date of these taxes.