Key Takeaways
- The Federal Insurance Contributions Act (FICA) funds Social Security and Medicare.
- Employers and employees equally share FICA tax responsibilities.
- Social Security and Medicare taxes comprise about 40% of the revenue the federal government collects from individual taxpayers, small businesses, and corporations, according to the U.S. Treasury.
What is FICA Tax?
The Federal Insurance Contribution Act (FICA) includes the combined taxes collected to help fund Social Security and Medicare programs.
Created in 1935 to pay Social Security benefits to retirees, FICA now covers retirement benefits, disability benefits and benefits to workers’ survivors. Medicare, added in 1965, helps pay for medical coverage for people aged 65 and up.
Why FICA is Important
The Social Security program benefits retirees, disabled individuals under retirement age, spouses, former spouses, and, in some cases, dependent children. This is also called Old Age, Survivors and Disability Insurance tax, or OASDI tax.
The Medicare tax allows employees to qualify for Part A Medicare coverage with no additional cost to obtain coverage through Parts B, C, and D when eligible.
Is FICA the Same as Federal Income Tax?
FICA and federal income tax are not the same. Both involve tax deductions from an employee’s earnings. The main difference between FICA and federal income tax is who pays them and their purpose.
FICA funds Social Security and Medicare. It’s a predetermined percentage of wages, matched by the employer, with a cap on Social Security contributions.
Federal income tax funds general government expenses. Workers are taxed at a progressive rate based on income level, exemptions, and deductions.
Is FICA Mandatory?
FICA taxes are mandatory payroll taxes that must be withheld and paid on behalf of each employee. It is up to the employer to calculate, withhold, deposit, and report FICA taxes. FICA taxes must be paid semi-weekly or monthly. Employers report FICA taxes on IRS Form 941.
Employers are legally liable for any unpaid taxes. Employers who do not properly deduct payroll taxes from employee wages may be subject to interest, fines, and penalties, including civil monetary penalties, criminal prosecution, and even jail. If an employer fails to pay or report FICA taxes, the employer’s owner or officers can be held personally liable for the taxes.
What is FICA Withholding Tax?
The FICA tax rate is a fixed percentage applied to all taxable compensation. This includes salary, wages, tips, bonuses, commissions, and taxable fringe benefits.
Who Pays FICA?
Employees and employers equally share the FICA tax.
What FICA Tax Includes
FICA tax includes Social Security (or OASDI tax) and Medicare. The taxes have different rates.
Social Security
- The Social Security (or OASDI tax) part of FICA is a flat 6.2% withheld from employee compensation up to a set wage base limit.
- The employer pays the same amount, bringing the total tax to 12.4%.
- The wage base limit is the maximum wage subject to the tax for the year.
- The wage base limit can change each year.
Medicare
- For the employee, the Medicare part of FICA is 1.45% of all compensation subject to the tax.
- The employer pays the same amount, bringing the total tax to 2.9%.
- There is no wage base limit for Medicare tax.
- An employer must withhold additional Medicare tax of 0.9% for any employee who earns more than $200,000, starting with the pay period the employee exceeds that amount.
- There is no employer share of additional Medicare tax.
Current FICA Tax Rates and Limits
For more details about the Social Security wage base limit or Social Security and Medicare tax rates refer to Publication 15, (Circular E), Employer's Tax Guide.
Compensation subject to FICA also includes salary reduction contributions employees make to 401(k) or comparable plans, even when contributions are not taxable. Check IRS Publication 15-B for a chart that shows which fringe benefits are subject to FICA and which are exempt (see Table 2-1).
How to Calculate FICA Taxes
The Social Security portion of FICA is a flat 6.2% up to a wage base limit. If an employee earns $70,000 annually, the Social Security calculation would look like this:
$70,000 annual salary x 6.2% employee portion of Social Security tax = $4,340
The Medicare portion is 1.45%, without an earning cap. For the employee with a $70,000 annual salary, the Medicare calculation would like this:
$70,000 annual salary x 1.45% employee portion of Medicare = $1,015.
An additional Medicare tax of 0.9% kicks in after an employee earns $200,000 in a year.
Employers then contribute matching amounts for both Social Security and Medicare taxes for each employee.
This shared responsibility ensures that enough funds are available for future benefits. Both employers and payroll systems must calculate these withholdings accurately to comply with federal regulations.
Use our free paycheck calculator to estimate tax withholdings and take-home pay.
What is the Employer’s Responsibility for FICA Payroll Taxes?
As an employer, you are responsible for withholding, contributing your share, depositing and reporting FICA payroll taxes.
Employers may submit FICA taxes monthly or semi-weekly. Your total tax liability during the lookback period, the four quarters ending on June 30 of the previous year, will determine whether you file monthly or semi-weekly.
- If you reported less than $50,000 in taxes during the lookback period, then you may file your FICA taxes monthly. That means your FICA taxes are due to the IRS by the 15th of the month, or the next business day if the 15th falls on a Saturday, Sunday, or legal holiday, following payroll.
- If you reported more than $50,000 in taxes during the lookback period, then you must make semi-weekly deposits to the IRS. For example, if you pay your employees on a Wednesday, Thursday or Friday, you must deposit your FICA taxes by the following Wednesday. If you pay your employees on a Monday, Tuesday or the weekend, you must file your taxes by the following Friday.
- Businesses less than a year old follow a monthly deposit schedule.
You are also responsible for filing Form 941 quarterly. Employers use Form 941 to:
- Report income taxes, Social Security tax or Medicare tax withheld from employee's paychecks.
- Pay the employer's portion of Social Security or Medicare tax.
Quarterly due dates are:
- April 30 for the first quarter
- July 31 for the second quarter
- October 31 for the third quarter
- January 31 for the fourth quarter of the previous calendar year
You must also report the amount of FICA withheld on the employees’ pay stub and their Form W-2.
Frequently Asked Questions
How does FICA Tax impact self-employed workers?
Self-employed workers do not pay FICA. They cover their Social Security and Medicare obligations through the Self-Employed Contributions Act (SECA). The 15.3% self-employment tax rate includes:
- 12.4% for Social Security
- 2.9% for Medicare
You calculate SECA the same way as FICA, including additional Medicare tax on income over $200,000.
A self-employed individual may have to file Estimated Taxes quarterly. You can use these estimated tax payments to pay your self-employment tax. Check Estimated Taxes and Publication 505, Tax Withholding and Estimated Tax for more information.
You can deduct the employer-equivalent part of your self-employment tax when calculating your adjusted gross income. Wage earners cannot deduct Social Security and Medicare taxes.
What are payroll taxes?
When you hire employees for your small business, you handle withholding, depositing and reporting employment taxes, including:
- federal income tax
- state income and local income taxes, where applicable
- employees’ share of Social Security and Medicare taxes (called FICA)
You must also deposit and report the employers’ share of:
- FICA
- federal unemployment taxes (FUTA)
- state unemployment taxes (SUI)
Failure to properly withhold and deposit payroll taxes can result in significant penalties.
What is FICA on my paycheck?
FICA on your paycheck refers to the deductions for Social Security and Medicare taxes. These mandatory contributions are listed separately on your pay stub, usually under FICA or as separate Social Security and Medicare entries.
Employers calculate these amounts based on set rates. The current combined rate is 7.65% of your gross earnings, split into 6.2% for Social Security and 1.45% for Medicare.
This deduction ensures you contribute toward future benefits like retirement income and healthcare. If you notice discrepancies, it’s important to address them with your employer or HR department promptly.
What is the maximum FICA taxable income amount?
The maximum FICA taxable amount pertains primarily to Social Security taxes. The IRS establishes a wage base limit each year. This threshold is adjusted annually to account for inflation and wage trends. Earnings above the wage base limit are not subject to the 6.2% Social Security tax.
For more details about the Social Security wage base limit or Social Security and Medicare tax rates refer to Publication 15, (Circular E), Employer's Tax Guide
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