How to suppress the FICA Tax


How can I suppress the FICA tax calculations? My current income is from deferred compensation and returns on financial assets. At the time of the income deferral both FICA and Medicare Taxes were paid on the deferred amount, and I do not have to pay twice. The amount showing up in the report is meaningful.


dan royer's picture

The program only collects the ordinary FICA tax on W-2 wages. However, there is a so-called Medicare tax which may be what you are seeing in the FICA column since that's where the program puts it.

Thank you. The problem is my former employer, a fortune 100 company, (I'm retired)does not withhold any Medicare tax & my tax preparer says I don't owe anything additional. Are you sure you're right? Also, it is my income, but the report shows FICA for both my wife and me. That's clearly wrong.

dan royer's picture

It's probably the Unearned Income Medicare Contribution tax. This is a new tax that treats unearned income over $250,000 the same as earned income over $250,000. Since this is a Medicare Part A tax, we report it as FICA.

I may have referred you to an unhelpful website before. Try this one.

This extra tax is reported in the FICA column and is split evenly between husband and wife--I assume you are seeing the same amounts in both columns?

Read this link in this note from a Forbes page or Google "unearned income medicare contribution tax" and see if that's it. The last report in the PDF under details shows a tax worksheet and will reveal if you are hitting those thresholds where that tax on unearned income kicks in.

Thank you. I had not commented on this before so you hadn't deferred me to that website. That said, it is my understanding it still does not apply in all cases. In my case my deferred payments were taxed at the time I deferred a portion of my income. Say I had $100 of income and I deferred $50 of it. At the time of deferral I paid a medicare tax on the entire $100.

Since my employer is not withholding for medicare and my tax preparer is telling me I don't owe anything, I would like to take the tax out of the report. The tax payments do have an impact on the results of your program. It should be a simple change telling the program to ignore the tax if I and my advisors think it does not apply in my particular case: an of/off switch.

dan royer's picture

I guess I'd have to see the report to know for sure what's going on. The program doesn't ascribe taxes where they don't belong. Or I should say: it's a matter of proper inputs.

It sounds like you are saying that your employer is paying you a stream of payments that have no payroll tax on them. I'd just enter these as a series of Special Receipts instead of as wages. Earnings wages are taxed by the program at one rate and self-employment is a different kind of payroll taxation. But you are describing a series of payments with no payroll taxes (but with just ordinary income tax?) If that's the case, enter these as a series of Special Receipts and have them either tax deferred or taxable at ordinary rates.

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