Social Security and its programs are funded by a combination of employer payroll tax contributions and employee tax withholdings. The programs collectively are known as Old Age, Survivors and Disability Insurance (OASDI). The rate of contribution for employers and employees is set by law, and the maximum earnings base (the maximum amount of wages the rate is applied to each tax year) tends to increase year over year.
Medicare is a United States program that provides health insurance benefits to people over 65 years old and those with certain disabilities. The program is administered by the Social Security Administration, and is funded in part by a combination of employer payroll tax contributions and employee tax withholdings. There is no ceiling or maximum earnings base on Medicare.
The State Unemployment Tax Act defines a program that authorizes each state to collect unemployment insurance in the form of contributions from both employers and employees. Also referred to as State Unemployment Insurance (SUI), the rate varies by state for all employers, and each state has its own maximum wage base (earnings to which it is applied, per employee). SUTA contributions are filed quarterly with the state’s unemployment office, and fund the payment of unemployment benefits to residents of that state. A state with a sudden increase in unemployment claims may borrow from the federal unemployment funds, which has consequences in subsequent years if the borrowed monies are not repaid within a certain amount of time - see FUTA Credit Reduction.
The Federal Unemployment Tax Act provides a method for the federal government to collect unemployment contributions, particularly as a backup in case an employer defaults in making timely unemployment tax contributions to a state unemployment fund. For this reason, FUTA is officially an amount roughly 10x higher than the amount ultimately due. E.g., when the FUTA rate is 6%, most employers will receive a credit of 5.4% for paying their SUTA contributions on time and in full, making their effective FUTA rate 0.6%. However, there are times when state unemployment funds have borrowed from the federal government, reducing that credit and effectively increasing the FUTA rate. See FUTA Credit Reduction.
A FUTA credit reduction occurs when a state has defaulted on a loan it received from the federal government to cover its unemployment benefit costs. This scenario effectively increases the FUTA rate for employers, as it marginally reduces the substantial credit employers normally receive against their FUTA contributions. States have the ability to pay back the amount owed and have their credit reduction removed; however, for each year of default the credit will continue to reduce by 0.3%, effectively increasing FUTA for employers by that same amount each year.
Gross wages are the amounts that are paid to an employee by an employer, before any deductions are withheld or fringe percentages applied. Also called gross pay or gross payroll.
Wage-based fringes are percentages charged on the gross wages of each employee. A number of these fringes have a ceiling or “cutoff,” which is typically expressed as the maximum amount of gross payroll wages to which the fringe will be applied, per employee, in a given time frame. For example, if a particular fringe rate is 5%, and the Maximum Wage Base on that fringe is $10,000 per year: the employer must pay that 5% fringe on each employee only up until they have paid the employee $10,000 in gross wages for the year. This effectively amounts to a $500 max contribution for any given employee in the year for the example fringe. Once that max contribution has been reached, the employer will no longer owe the fringe on that employee for the remainder of the year.
“P&H” is short for Pension and Health, which itself is a catch-all for the benefit contributions made, per agreement, to a union by an employer of one or more of the union’s members. Sometimes called PH&W for Pension, Health and Welfare; or simply Pension. The contributions are made in the form of a percentage of the union member’s gross wages, by the employer that is signatory to the union agreement – typically a production company or ad agency. The payment can be passed through a third party, such as an Employer of Record payroll service, which calculates and makes the contributions on the signatory production company’s behalf, billing the production company the same amount as a passthrough service.