Two people discuss taxes with an adviser." />The FICA tax—FICA stands for Federal Insurance Contributions Act—is a federal payroll tax. Money comes out of workers’ paychecks, with the tax funds going to pay for federal Social Security and Medicare programs. To calculate the FICA tax owed by an employee, an employer generally multiplies the worker’s gross income by the Social Security and Medicare tax rates.
Read on to learn more about FICA and the FICA tax.
Key takeaways
The FICA tax is a federal payroll tax that provides funds for the Social Security and Medicare programs.
In 2022, the Social Security program paid more than $1.2 trillion in monthly benefits to retired and disabled Americans, along with some of their dependents. Social Security represents around one-fifth of the federal budget.
During the federal government’s 2021 budget year, $900.8 billion in Medicare health insurance benefits went to Americans ages 65 and over, along with some people dealing with various disabilities and illnesses. Medicare makes up about one-tenth of the federal budget.
A federal law passed in 1935 created the FICA tax to pay for the Social Security program. The Medicare component of FICA was added in 1965.
Employers and employees both pay FICA taxes.
An employer withholds 6.2% of an employee’s paycheck for Social Security and 1.45% for Medicare—up to certain income limits—adding up to a total FICA tax of 7.65%. The employer then separately pays the same 7.65% FICA tax. Altogether, the employee and employer contribute a FICA tax of 15.3%. Self-employed Americans pay the full 15.3% FICA tax.
An extra Medicare tax of 0.9% applies only to the wages, compensation and self-employment income that go above a certain dollar amount. This tax took effect in the 2013 tax year as part of the Affordable Care Act. Employers aren’t required to pay the surtax.
Here’s more information on the three taxes and their income limits:
If a worker earns less than the Social Security wage limit, they can calculate how much FICA taxes are owed by multiplying gross pay by 7.65%—the combined rate for Social Security and Medicare taxes. If self-employed, the worker would pay a FICA tax of 15.3%—essentially both the employer’s and employee’s share—on earnings.
The FICA tax typically affects taxable compensation—such as salary, wages, commissions, bonuses and tips—as well as taxable benefits and salary reduction amounts for contributions to plans like 401(k) plans.
Here is an example of how the math works:
Let’s say you’re a single filer whose gross pay is $100,000. To come up with the amount that would be withheld from your paycheck for FICA taxes, you’d multiply $100,000 by 7.65%. The result: $7,650. In this case, the Medicare surtax would not kick in because the gross pay falls below the threshold.
Here are some frequently asked questions about FICA:
Is FICA a self-employment tax?
The Self-Employment Contributions Act (SECA) tax is essentially the FICA tax for self-employed people. This tax is paid on most net earnings from self-employment.
How do FICA taxes work for self-employed individuals?
In 2023, the Social Security portion of the self-employment tax—12.4%—applies to the first $160,000 in net income. Meanwhile, the Medicare portion of the tax—2.9%—doesn’t include a dollar limit on earnings. All told, the SECA tax adds up to 15.3%.
The Medicare surtax—0.09%—is tacked on for single filers who earn more than $200,000 and married couples filing jointly who earn more than $250,000. It also applies to married couples filing separately when each partner earns more than $125,000.
Are FICA taxes paid on unemployment benefits?
FICA taxes aren’t paid on unemployment benefits.
Is everyone required to pay FICA taxes?
In most cases, people working part time and full time in the U.S. must pay FICA taxes, regardless of the citizenship or residency status of an employee, employer or self-employed person. There are a few exceptions, though. They include:
In the majority of cases, full-time employees, part-time employees and self-employed people must pay FICA taxes, with that revenue supporting federal Social Security and Medicare programs. People whose earnings exceed a certain threshold must pay an extra Medicare tax. Employers pay the same percentage of FICA taxes as their employees, but employers aren’t subject to the additional Medicare tax.
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