What Is FICA Tax? A Guide to FICA Taxes for Business Owners

What is FICA tax?

The Federal Insurance Contributions Act tax, known commonly as FICA tax, is money withheld from an employee’s pay by their employer to then be collected by the federal government. The FICA tax funds the federal government’s Social Security and Medicare programs. In turn, FICA helps provide benefits to retirees, children, and the disabled.

How does FICA tax work?

An employer deducts a percentage of an employee’s gross pay for FICA taxes. When the deduction is made from the employee’s paycheck, the employer is responsible for remitting it to the IRS (Internal Revenue Service). The employer also matches the employee's portion and submits both. Self-employed individuals withhold a version of FICA taxes from their income, known as self-employment tax, and pay both the employee and employer portions.

FICA tax refers to two types of taxes: Social Security tax and the Medicare tax. Almost all income is subject to FICA taxes, with a few exceptions:

• Some minor children. Children under 18 employed by their parents do not pay FICA taxes.
• Retirement distributions. Income received from qualifying employer retirement plans, such as a 401(k), is not subject to FICA tax.
• Students. Students employed and earning income from the school, college, or university they attend do not pay FICA taxes.
• Others. Some religious organization employees and state or local government employees may be exempt from paying the FICA tax.

FICA taxes pay the Social Security and Medicare benefits of current beneficiaries. A person earns one credit for each quarter they pay these taxes and needs 40 credits to claim Social Security benefits at their eligible age.

What is the FICA tax rate?

The overall FICA tax rate is 15.3%. This FICA tax rate is divided equally between the employee and the employer, so each is responsible for 7.65%. The Social Security tax accounts for 6.2% and the Medicare tax accounts for 1.45%. Employers use the employee’s gross pay to determine the FICA tax amounts.

There is a wage base limit on the Social Security tax, meaning some income is exempt from the tax. In 2022, only the first 147,000ドル of an employee’s income is subject to the Social Security tax. Any income earned over that amount does not have the 6.2% for Social Security withheld. There is no limit on the Medicare tax, but there is an additional tax of 0.9% for single filers on earnings over 200,000ドル and joint filers on earnings of more than 250,000ドル.

How to calculate FICA tax

FICA tax is calculated differently based on your income and whether you are a single filer or filing jointly. If you are trying to determine how much should be withheld for FICA, multiply the tax percentage by the employee’s gross income. The formulas are:

Gross income (up to 147,000ドル) x 6.2% = Social Security tax

Gross income x 1.45% = Medicare taxes

Additional income over 200,000ドル x 0.9% = Additional Medicare taxes

Here are some scenarios to help understand the differences based on the amount of income.

Single filer earning 45,000ドル

To calculate Social Security tax, multiply the 45,000ドル salary by 6.2%, for 2,790ドル due. For Medicare tax, multiply the salary by 1.45%, for 652ドル.50 due for Medicare taxes. A total of 3,442ドル.50 is due from this employee’s salary for the employee’s portion of FICA taxes.

Single filer earning 210,000ドル

Social security tax is only calculated on the first 147,000ドル of an employee’s income, so the employer multiplies that income by 6.2%, for 9,114ドル in Social Security taxes. For Medicare taxes, a single-filer earning more than 200,000ドル pays an additional 0.9% on earnings over 200,000ドル. Therefore, 210,000ドル is multiplied by 1.45%, for 3,045,ドル and the additional 10,000ドル is taxed at 0.9%, for an additional 90ドル in Medicare taxes, for Medicare taxes owed of 3,135ドル. The total FICA taxes for this employee is 12,249ドル.

Joint filers earning over 275,000ドル

If one spouse earns 225,000ドル and the other earns 100,000,ドル Social Security tax is still calculated the same. The employer is responsible for withholding 6.2% on the first 147,000ドル for the employee earning 225,000,ドル for 9,114ドル in Social Security taxes. The spouse earning 100,000ドル will have their whole income subject to Social Security tax, for a total of 6,200ドル. The joint Social Security liability for these filers is 15,314ドル. For Medicare taxes, the filers will owe additional Medicare tax, since the combined income is over 275,000ドル. The employer of the spouse earning 225,000ドル is responsible for withholding the additional Medicare tax of 225ドル (25,000ドル x 0.9%), in addition to the regular Medicare tax amount of 225,000ドル multiplied by 1.45%, for 3,262ドル.50 in Medicare taxes. The spouse earning 100,000ドル will have 1,450ドル withheld for Medicare taxes. The couple will be responsible for 4,937ドル.50 for Medicare taxes. Their total FICA taxes: 20,251ドル.50.

Joint filers who each earn below the 200,000ドル threshold but earn more than 250,000ドル combined would not be required to have the additional Medicare tax withheld by their employers. That’s because neither meets the individual 200,000ドル threshold, which would require employers to withhold the additional tax.

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