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What is FICA Tax
Charles Hardy | Last Updated: March 10, 2025
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Every business owner who runs an organization and pays their employees must be aware of the taxes. One of the important taxes is FICA, which includes Social Security and Medicare tax. Let's understand What is FICA and how it affects the employee's paychecks.
Key Takeways:
- FICA(Federal Insurance Contribution Act)taxes are payroll taxes that combine both Social Security and Medicare taxes.
- Employers and employees must contribute a certain percentage.
- The Social Security tax rate is 6.2% and the Medicare tax rate
is 1.45%. - Self-employees who earn more than $400 should contribute the entire FICA tax on
their own.
What is FICA tax?
FICA is commonly known as the Federal Insurance Contribution Act. It is one of the federal laws established in 1935. It is otherwise known as the payroll tax. Both the employers and employees must contribute certain limits to the IRS. FICA tax includes Social Security tax and Medicare tax.
Household employees who earn $2600 or more are eligible for FICA taxes.
Election employers who paid $2300 or more are eligible for FICA taxes.
Important Components of FICA Tax
The Components of FICA taxes can be classified
as follows
- Social Security tax
Social security is one of the components of FICA taxes. Employers and employees should contribute an equal share to the IRS. These taxes are funded for the social security program such as retirement benefits, disability, and survivorship benefits. The Social Security tax rate is 12.4%, and they should contribute equally (i.e.,6.2%). It is otherwise known as the Old Age, Survivors, and Disability Insurance (OASDI). -
Medicare tax
Medicare tax is collected to support the medicare health system in the U.S. It includes hospital insurance, treatments for senior citizens, and nursing care. The medicare tax rate for both employers and employees is 1.45%. The total medicare tax rate is 2.9%. An additional medicare tax rate of 0.9%.
Rates and limits of FICA taxes
According to the IRS, FICA taxes include Social Security and Medicare taxes. Each tax has different limits. The rates and limits of FICA taxes are
Wage base limits
The maximum wage base limit for Social Security tax is $168,600 for the current tax year 2024.
Mandatory tax rates
- Social Security tax - The tax rate for Social Security is 12.4% and is split between employers and employees. Employees contribute 6.2% of their gross. Similarly, employers also contribute the same.
-
Medicare tax - The tax rate for Medicare is 2.9% and is split between employers and employees. Employees contribute 1.45% of their gross. Similarly, employers also contribute
the same. -
Additional Medicare tax - Employees must pay 0.9% additional medicare taxes if they earn over the threshold of $200,000(for individuals) and $250,000(for married couples filing together). So, the Medicare tax rate depends upon the wages earned by
the employee.
Total tax rate
The total FICA tax rate is 15.3%, So employers and employees must contribute 7.65% each.
| FICA tax | Employees pay | Employers pay | Wage base limit |
|---|---|---|---|
| Social security tax | 6.2% | 6.2% | $168,600 |
| Medicare tax | 1.45% | 1.45% | Individuals earn more than $200,000; $250,000 for joint filers; $125,000 for those married filing separately |
| Additional Medicare tax | 0.9% |
Aren’t subject to medicare tax |
|
| Total FICA tax rate | 15.3% | ||
How to calculate FICA taxes?
FICA taxes are calculated based on the tax rate of Social Security and Medicare taxes. Let's consider the example to calculate FICA taxes.
-
Example 1:
An employee working in an organization earns $50,000 as his salary. Let's calculate the FICA taxes for
the employeeSocial Security tax = $50,000 x 0.062 (the employee tax rate of 6.2%) = $3,100
Medicare tax = $50,000 x 0.0145 (the employee rate of 1.45%) = $725
Total FICA = ($3,100 + $725) = $3,825
-
Example 2:
An employee working in an organization earns $250,000 as his salary and filing as an individual. Let's calculate the FICA taxes for the employee
Social Security tax = $168,600 x 0.062 (the employee tax rate of 6.2%) = $10,453
Medicare tax = $200,000 x 0.0145 (the employee rate of 1.45%) = $2,900
Additional Medicare tax = $50,000 x 0.009 (the total rate of 0.9%) = $450
Total Medicare tax = $3,350
Total FICA =( $10,453 + $3,350) = $13,803
How does FICA tax work for Self-employed?
- Self-employed are individuals who run a small business. It also includes freelancers, independent contractors, and sole proprietors.
- SECA (Self-Employed Contributions Act) is the self-employee tax.
- Self-employed individuals must pay the entire 15.3% of FICA taxes to the IRS. If the employers earn more than the threshold, they should pay additional Medicare (0.9) taxes too.
- Employers opt to pay self-employed taxes if the net earnings are $400 or more.
Who are all exempt from FICA taxes?
The major exemptions From FICA taxes include
- Federal government employees hired before 1984.
- State and local government employees with pension plans.
-
Self-employed/ individual who earns less
than $400. -
Students, scholars, teachers, researchers,
and other individuals with temporary nonimmigrant, nonresident status are exempt
from FICA. - College students who get On-campus jobs.
Frequently Asked Questions
If employers fail to withhold employment and federal income taxes, it may lead to criminal and civil sanctions. Employers must file it properly to avoid such legal penalties.
No, FICA taxes are not the same as Social Security taxes, It is one of the components of FICA tax. Social Security tax refers to 6.2% deducted from the employee's paycheck whereas, FICA tax is the combination of both Social Security and Medicare tax.
- FICA and Federal Income tax are not the same, they are separate taxes funded for different government activities.
- FICA taxes are meant for Social Security funds and Medicare funds(Health Insurance, Hospital insurance, etc.,).
- Federal Income taxes are meant for public benefits such as national parks, highways, and more.
