× Success! Thank You for Downloading Form 941 Guide from TaxBandits! Please check your email now! What is FICA Tax Charles Hardy | Last Updated: May 21, 2025 Home Do It Yourself Payroll What is FICA Tax 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. Table of Content: What is FICA tax? Important Components of FICA Tax Rates and limits of FICA taxes How to calculate FICA taxes? How does FICA tax work for Self-employed? Who are all exempt from FICA taxes? Frequently Asked Questions 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 taxSocial 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 taxMedicare 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 employee Social 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. Get Started with TaxBandits FREE Payroll Today! Designed for small businesses, our free payroll solution has no hidden fees or subscription charges. Effortlessly run payroll with automated tax calculations, stay IRS-compliant, and ensure your employees get paid accurately and on time. Frequently Asked Questions What will happen if an Employer has not Withheld any Employment and Federal Taxes? 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. Is the FICA tax same as the Social Security tax? 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. Is FICA the same as Federal Income 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.,). 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