What Is FICA on My Paycheck? About Tax Withholding

FICA stands for the Federal Insurance Contributions Act; it mandates that all United States taxpayers contribute to Social Security and Medicare programs. FICA taxes fund programs that provide Medicare and Social Security benefits to retirees, children, and people with disabilities. The federal government collects a percentage of every US taxpayer’s paycheck to ensure such contributions.

You may know FICA taxes as “payroll taxes” because employers typically deduct the funds from employee paychecks and remit them to the Internal Revenue Service (IRS) on the employee’s behalf. Self-employed workers must pay a self-employment tax, which covers the total amount of medicare and social security taxes. Get help understanding taxes and their impact with Nobel Prize–winning economist Paul Krugman.

FICA is separate from federal income tax withholding. Although federal income taxes and FICA remit employee wages every pay period, they require different calculations. The amount you pay in income taxes depends on how you respond to specific fields on Form W-4, such as yearly salary, filing status, and the number of dependents. In contrast, every US employee pays the same FICA tax rates.

All US taxpayers must pay FICA taxes. Employees pay half of the FICA taxes and their employer pays the rest. Social security—known as Old-Age, Survivors, and Disability Insurance (OASDI)—requires a 12.4 percent payroll tax up to the Social Security wage base limit of $147,000. Employee wages pay half (6.2 percent), and the employer pays the other half. Medicare taxes—also referred to as hospital insurance taxes—get funded by a 2.9 percent Medicare tax. Employees contribute 1.45 percent of their annual gross income as part of their tax withholdings, and the employer pays the other 1.45 percent. There is no wage base limit for Medicare taxes. High earners pay 0.9 percent in additional Medicare taxes.

There are a few exemptions. Students enrolled at least part-time in school who work part-time at the same school (also known as work-study) do not have to pay FICA taxes. Some state and local government employees are exempt from the social security portion of FICA taxes but must pay the Medicare portions. Nonresident aliens paid by a foreign government or employer are also exempt from paying FICA taxes.

To determine what you owe in FICA taxes, multiply your gross pay by 7.65 percent. For example, if you make $700 a week, you would owe $53.55 in FICA taxes.

This equation is different for self-employed workers. If you are self-employed, multiply your gross income by 15.3 percent. Following the example above, if you made $700 a week, you would owe $107.10 in FICA taxes.

Self-employed workers must cover the total FICA taxes—both the employee and employer portions. However, self-employed workers can submit FICA tax deductions on their tax returns.

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