Learn About FICA, Social Security, and Medicare Taxes

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There are certain taxes on income that everyone has to pay, and FICA taxes are at the top of the list. And employers must withhold these taxes from employee paychecks and pay them to the Internal Revenue Service (IRS). FICA taxes are the Social Security and Medicare taxes paid by individuals and employers. FICA taxes are called payroll taxes because they are based on the amounts paid to employees.

FICA taxes have two elements. withheld from employee paychecks and paid by employees and employers for (1) Social Security (OASDI) and (2) Medicare. This article gives you information about how to calculate FICA taxes, how to report and pay these taxes, what earnings are not part of FICA taxes, and more.

The term FICA is short for the Federal Insurance Contributions Act. The act was introduced in the 1930s to pay for Social Security; Medicare was added later.

The Breakdown of FICA Tax

The total FICA tax is 15.3%. That percentage is applied to the employee's gross pay. The employer and employee each pay 7.65%. Here is a breakdown of these taxes:

Melissa Ling. © The Balance 2018
  • Within that 7.65 percent, the OASDI (Old Age, Survivors, and Disability program, AKA, Social Security) portion is 6.2 percent—up to the annual maximum wages subject to Social Security.
  • The Medicare portion is 1.45 percent for each employee, on all employee earnings.

The Social Security portion is capped each year at a set amount; the Medicare portion is not capped.

Wages Not Subject to FICA Taxes 

Some pay items and payments to certain individuals are not subject to FICA taxes. Read this article for a definition of "social security wages" and a list of pay items that are exempt from Social Security tax.

Income of self-employed business owners is not withheld under the FICA system, but there is a different law requiring the payment of these taxes, called the Self Employed Contributions Act (SECA).

How FICA Taxes Are Calculated

To calculate the FICA withholding for employees, you must take the employee's gross pay (including overtime) and multiply by the employee rate of 7.65 percent. Two important points you must watch in your calculations include:

  • You must watch to see that the employee's total gross pay for the year does not exceed the Social Security maximum for the current year because you can't deduct more than the maximum Social Security amount each year.
  • You must also watch to see that the additional Medicare tax is withheld on the earnings of higher paid employees when their earnings reach $250,000 in a year. 

Note that there is no maximum Social Security tax for employers and there is no maximum Medicare tax for employers or employees.

See this article for details on how to calculate FICA withholding and payments of FICA taxes to the IRS.

If You Withhold Too Much FICA Tax

Did you deduct too much Social Security tax from an employee? Maybe it was because you kept on deducting above the Social Security maximum. In any case, you must refund the money to the employee. Make sure your payroll software doesn't count this as income to the employee; it doesn't affect the employee's gross pay so it's not income.

Paying FICA Taxes to the IRS

You must send FICA tax deposits, along with amounts withheld from employee pay for federal income tax, to the IRS periodically. The deposits must be made using the Electronic Federal Tax Payment System (EFTPS), and they are made either semi-weekly or monthly, depending on the average size of deposits for the past year (new businesses deposit monthly). Read more about how to determine when to make payments for FICA and federal income taxes.

Reporting FICA Taxes to the IRS

Employers must send a quarterly payroll tax report to the IRS on Form 941. This report, due on the last day of the month after the end of each quarter, shows amounts deducted from employee paychecks, amounts due from employers, and amounts paid during the quarter.

The Difference Between FICA Tax and Self-Employment Tax

FICA taxes were set up by the Federal Insurance Compensation Act (FICA) in the 1930s, first to fund the Social Security benefits program, and later, the Medicare program, for employees. A separate program, called the Self-employment Contributions Act (SECA) of 1954, requires self-employed individuals to pay Social Security and Medicare taxes on their self-employment income.

The rates for self-employment tax are 12.9 percent for the Social Security portion and 2.9 percent for Medicare. The maximum for Social Security also applies to SECA tax, and the additional Medicare tax applies to combined employment and self-employment income.