Summary: The Federal Income Contributions Act (FICA) regulates employer payment of medicare and social security contributions ('payroll taxes') in the United States.

Employers pay their employees wages, and employees deposit their earnings in their bank accounts.

It’s that simple, isn’t it? Unfortunately, not, and there are a lot of other factors to understand about paychecks, whether you’re an employer or an employee. You need to know how to calculate all the different types of employee earnings and deductions on a paycheck, and deductions can include FICA taxes.

These taxes, shared by both parties, are easy to calculate and manage with a little knowledge about who’s responsible for them and what they represent.

What are FICA Taxes?

The easiest way to understand FICA taxes is to pick apart the acronym in their name. FICA stands for Federal Insurance Contributions Act which was passed way back in 1935 by the Roosevelt administration.

The purpose of this tax was to collect funds for a newly established Social Security program which provides old-age, survivors, and disability insurance benefits for workers in the United States. The Social Security portion of the FICA tax is therefore sometimes called OASDI. 

In 1965, another portion was added to FICA taxes – the Medicare payroll tax. The Medicare program provides health insurance for people 65 and older as well as for younger people with certain disabilities and diseases that require long-term care.

Together, FICA taxes represent 15.3% of workers’ wages in the US and are paid by both employers and employees. Many of these funds return to employees in their old age, however, in the form of pensions and medical coverage.

Who Pays FICA Tax?

FICA taxes are paid by essentially all employers and employees in the US.

Employers are legally required to withhold FICA taxes from their employees’ paychecks at the rates of 6.2% for Social Security and 1.45% for Medicare contributions. Therefore, the employee’s share is 7.65% of their gross compensation, which includes salary, tips, bonuses, commissions, etc., before any deductions. 

Employers match these contributions of 6.2% for Social Security and 1.45% for Medicare by paying the equivalent of 7.65% of each employee’s gross compensation in FICA taxes. The employer’s contribution is considered a federal payroll tax and does not affect the employee’s salary.

If a person is self-employed, as in the case of a sole proprietor or independent contractor, they pay both the employer and employee contributions. This is because they act as both workers and their own employers. Therefore, self-employed persons are liable to pay the full 15.3% FICA tax on their gross income.

How to Calculate FICA Taxes for Employers and Employees

FICA taxes for Social Security and Medicare are calculated separately for an important reason. There is no wage-base limit for Medicare tax, which means that all wages are subject to 2.9% Medicare tax.

However, there is a wage-base limit for Social Security, which changes each year. For 2025, the wage-base limit for Social Security tax is $176,100. This means that an employee can usually only be taxed on the first $176,100 of their gross earnings. Above this limit, their employers cannot withhold any Social Security taxes and also do not need to make any more contributions to Social Security themselves.

To illustrate how to calculate FICA taxes, let’s look at two examples, one of a monthly paycheck calculation and the other a yearly calculation.

Monthly FICA Deductions Calculation

Worker X is paid $4,000/month and has no other income from tips or commissions. Therefore, this $4,000 is their gross income to which FICA taxes apply.

Worker X is liable to pay 6.2% of this income for Social Security and 1.45% for Medicare, and the following amounts are therefore deducted:

                                         Social Security tax = gross income X 6.2%

                                         Social Security tax = $4,000 x 0.062

                                         Social Security tax = $248

                                         Medicare tax = gross income x 1.45% 

                                         Medicare tax = $4,000 x 0.0145 

                                         Medicare tax = $58 


       Total gross monthly income less FICA deductions = $4,000 – $248 – $58 = $3,694


Worker X would be deducted a total of $306 ($248+$58) from their earnings. This would leave them with ($4,000-306) $3,694 which would also be subject to federal and state income taxes and other deductions.

Worker X’s employer must also pay 6.2% of their gross earnings for Social Security and 1.45% for Medicare. These calculations are the same so the employer would need to pay $248 to Social Security and $58 to Medicare as a payroll tax.

Yearly FICA Tax Calculation

Worker Y is an executive on a salary of $200,000 per year. Their Social Security and Medicare taxes could be calculated in the same way except that their gross income exceeds the wage-base limit for Social Security. Therefore, only their first $176,100 applies to Social Security while their full salary applies to the Medicare calculation:

                    Social Security tax = gross income up to wage-base limit X 6.2%

                    Social Security tax = $176,100 x 0.062

                    Social Security tax = $10,918.20

                    Medicare tax = gross income x 1.45% 

                    Medicare tax = $200,000 x 0.0145 

                    Medicare tax = $2,900

  Total gross income less FICA deductions = $200,000 – $10,918.20 – $2,900 = $186.181.80

Worker Y would be deducted ($10,918.20 + $2,900) $13,818.20 from their gross earnings and have $186.181.80 leftover, though this amount would also be subject to federal and state income taxes and other deductions.

Worker Y’s employer would also pay $10,918.20 to Social Security and $2,900 to Medicare for a total of $13,818.20 in contributions to FICA.

Additional Medicare Tax

People who earn over $200,000/year (or $250,000 if filing taxes jointly) are subject to an additional Medicare tax of 0.9% on their wages over these limits. However, their employers do not need to pay any additional contributions.

If individual tax filer Worker Z makes $250,000 in the year, for example, they’re deducted 1.45% from their first $200,000 and then are deducted 2.35% on the last $50,000 in wages they earned. The calculation for their Medicare taxes would be as follows:

         Medicare tax = gross income up to $200,000 x 1.45% +                               

 (additional gross income x 2.35%)

                     Medicare tax = ($200,000 x 1.45%) + ($50,000 x 2.35%)

                     Medicare tax = $2,900 + $1,175

                     Medicare tax = $4,075

Worker Z would pay $4,075 in Medicare taxes for the year. However, their employer wouldn’t have to pay additional Medicare tax and would instead be taxed at a flat rate:

                      Medicare tax = $250,000 x 1.45% 

                      Medicare tax = $3,625

Worker Z’s employer would only contribute $3,625 to Medicare for this employee this year.

Who’s Exempt from FICA Tax?

While nearly all employees and self-employed persons must pay FICA taxes, there are exceptions. Several different types of employees are exempt because they may not be eligible for Social Security and Medicare benefits or may receive other benefits instead. Exempt workers include:

  • Students who work at schools, colleges, or universities while also studying at the same institutions.
  • Public sector employees of some states and cities. They must receive equal or greater benefits instead to be exempt from FICA taxes.
  • Council members of recognized Native American tribal groups
  • Some non-resident aliens are working in the US temporarily or working for foreign governments while in the US
  • Members of some religious groups with religious objections to insurance

FICA Taxes Summarized

With a few exceptions, nearly all employees and employers in the US are liable to pay FICA taxes. These taxes fund Social Security and Medicare programs, largely to care for workers once they pass the age of retirement.

In general, employees are deducted 6.2% of their salaries for Social Security and 1.45% for Medicare taxes. These taxes must be withheld from their salaries and remitted to the Social Security Administration, while their employers must make matching contributions.

These funds support social programs, so while they act like taxes when assessed, they return to employees like benefits contributions in the future.

FAQ

Employers can accidentally withhold too much in FICA taxes through miscalculations or if employees change jobs mid-year. In these cases, employees can receive tax credits for their personal income taxes or receive FICA refunds.

If you changed jobs during the year, your new employer is required to continue withholding FICA taxes. This is true even if you reached the $176,100 wage-base limit with your previous employer. Your new employer must continue to withhold tax until you reach the wage-base limit with wages from them as well.

No, the Federal Unemployment Tax Act is a different act and is unrelated to FICA. The FUTA requires employers to pay unemployment insurance contributions, but employees do not need to make these contributions.