FICA Percentage: Everything You Need to Know

FICA tax funds Social Security Trust Funds and the Medicare Hospital Insurance Trust Fund, respectively, and pays for benefits related to those government programs. If you have earned income—which includes wages from an employer or self-employment—you’re likely subject to FICA tax. If you’re having trouble finding the Social Security tax deduction on your pay stub, don’t worry.

Employees pay 6.2% of their earnings for Social Security retirement benefits and their employer pays 6.2% for a total of 12.4% of a worker’s income. An additional 1.45% tax is also collected to fund Medicare benefits and this, too, is matched by employers. In that case, the employer withholds 6.2 percent on behalf of the employee, totaling $124, and then pays an additional 6.2 percent as the employer’s share, totaling $124. Thus, this employee will have a total of $248 paid into Social Security from his withholding and his employer’s matched payment.

The Self-Employed Contributions Act (SECA)

If you earn a wage or a salary, you’re likely subject to Federal Insurance Contributions Act taxes. Not to be confused with the federal income tax, FICA taxes fund the Social Security and Medicare programs. Also known as payroll taxes, FICA taxes are automatically deducted from your paycheck.

  • As we mentioned above, FICA taxes go to funding two different programs—Social Security and Medicare.
  • The Federal Insurance Contribution Act, introduced in the 1930s, requires employers and employees to contribute to Medicare and Social Security programs.
  • To figure out how much you owe, you can use the worksheet and instructions provided by the IRS for Form 1040-ES.
  • Once the threshold is reached, the tax applies to all wages that are currently subject to Medicare tax, to the Railroad Retirement Tax Act, or to the Self-Employment Contributions Act (SECA).

But if you’re an American and an employee (or an employer), chances are you’re one of the lucky millions required to pay into FICA. The Federal Insurance Contributions Act was passed in 1935 to create a funding mechanism for Social Security. However, the federal government did not begin to collect FICA payroll taxes until 1937. Since then, a Medicare payroll tax was added in 1965 to contribute to Medicare costs. If it’s below the wage base for a particular employee, then the FICA tax rate applied is 7.65%. If it’s above the wage base, you need to use the Social Security tax rate to wages up to the wage base and the Medicare tax rate to all compensation.

Are There Additional Employer Responsibilities for FICA Taxes?

FICA tax deductions also provide benefits to widows and widowers, children who have lost working parents, and disabled workers who qualify for benefits. The amount paid in payroll taxes throughout one’s working career is linked investment fund accounting to the Social Security benefit that one receives as a retiree or one’s family receives if a covered worker dies. Two separate taxes are added together and treated as one amount that is referred to as “payroll taxes” or FICA.

Do I Have to Pay FICA?

Thus, for monthly filing, your FICA taxes are due to the IRS by the 15th of the month following payroll. Both Social Security and Medicare taxes are “insurance” taxes. Social Security includes the old-age, survivors, and disability insurance taxes. The FICA tax also is not imposed on unearned income, including interest on savings deposits, stock dividends, and capital gains such as profits from the sale of stock or real estate. The proportion of total income that is exempt from FICA tax as “unearned income” tends to rise with higher income brackets.

Betting on Social Security and Medicare as your only retirement savings and health care insurance is a terrible idea. Remember, these taxes are not used to pay for your future benefits. Instead, those payroll taxes you’re paying are collected by the IRS and sent out to folks who are currently receiving Social Security benefits (aka beneficiaries). Some people are “exempt workers,” which means they elect not to have federal income tax withheld from their paychecks. Social Security and Medicare taxes will still come out of their checks, though.

What if My State Has a Social Security Tax?

As you can see, the employer’s portion for the social security tax and the regular Medicare tax is the same amount that you’re required to withhold from your employees’ wages. (Different rules apply for employees who receive tips.) There is no employer portion for the 0.9 percent additional Medicare tax on high-earning employees. For the Social Security portion of FICA, both the employer and the employee pay 6.2 percent of gross compensation up to the Social Security wage base limit of $147,000, totaling 12.4 percent. Employers only withhold Social Security taxes up to this wage base limit, adjusted annually.

Remember, you’re required to pay Social Security taxes only on earnings up to $147,000. Keep in mind that if you’re self-employed, you’re both employer and employee—so you’re responsible to pay the full 15.3% for Medicare and Social Security taxes. However, the law allows you to take a deduction for 50% of the amount on your tax return.

And if you’re self-employed, you’ll need to use the IRS worksheets to ensure you’re paying the correct amounts. Here’s how the increased Social Security wage base works out for high earners in 2023—who can expect to pay $818 more in Social Security taxes than in 2022. Yep, starting your own business has its rewards, but unfortunately, being self-employed doesn’t get you off the hook when it comes to paying taxes—especially paying FICA taxes. See, the Self-Employment Contributions Act (SECA) says you still have to contribute to Social Security and Medicare, even if you’re self-employed. Instead, those taxes contribute to everyone currently receiving Social Security benefits. That includes current retirees, disabled workers, and surviving spouses or children of workers who have died.

For the Medicare portion of FICA, both the employer and the employee pay 1.45 percent of the employee’s gross compensation, totaling 2.9 percent. FICA taxes are mandatory employment taxes that must be both withheld and paid on behalf of each employee. In other words, the employer matches the FICA tax share that the employees have withheld from their paychecks. You withhold 7.65% of each employee’s wages each pay period. And, you contribute a matching 7.65% for the employer portion.

For 2023, the new wage base is $160,200—a $13,200 increase and the largest wage base hike in history. Self-employed workers will pay self-employment tax (SECA) based on the net income from their business, which is calculated using form Schedule SE. The Social Security Administration uses your historical Social Security earnings record to determine your benefits under the social security program. The amount your employer sets aside for FICA is based on percentages set by the federal government.

Social Security tax is 12.4%, and 2.9% goes to Medicare tax. In addition to depositing FICA tax, you must report it on Form 941 or Form 944. Form 941 is a quarterly tax return form whereas Form 944 is an annual form. Your depositing schedule depends on the total tax liability you reported during a four-quarter lookback period.

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