FICA

What Is FICA?

FICA, or the Federal Insurance Contributions Act, is a US payroll tax that's deducted from employees’ paychecks to fund Social Security and Medicare—two federal programs that provide benefits to retirees, people with disabilities, and children of deceased workers.

Both employees and employers pay these taxes equally, but employers submit FICA tax payments on behalf of their workers.

What Percentage of FICA Is Taken Out of Employees’ Paychecks?

According to the IRS, the FICA withholding rates in 2023 and 2024 are as follows:

• Social Security: 6.2% of employees’ gross wages
• Medicare: 1.45% of employees’ gross wages

Unlike Medicare, Social Security deductions are made up to a set wage limit. Also, employee gross wages over $200,000 are subject to an additional 0.9% Medicare tax.

2023 FICA Limit

The annual 2023 Social Security wage base limit is $160,200. This means the maximum Social Security tax employees and employers each pay in 2023 is $9,932.40.

2024 FICA Limit

The IRS raised the Social Security wage base limit to $168,600. The maximum Social Security tax employees and employers each pay in 2024 is $10,453.20.

How to Calculate FICA Taxes

Employers and employees each pay the same amount of FICA tax, which is 7.65% (Social Security tax + Medicare tax). If you're self-employed, you're responsible for both the employer and employee contributions (15.3% total). These calculations must be accurate to comply with federal regulations.

To calculate the total FICA tax, multiply the employee's gross pay by 0.153 (15.3%). If you only wish to calculate one party’s FICA tax burden, multiply the gross pay by 0.0765 (7.65%) or simply cut the total tax burden in half.

Example: Calculating 2023 FICA Tax Withholding

For those in higher tax brackets, 2023 FICA tax calculations are more complex due to the wage limit. Remember, these calculations only apply to income up to $160,200—anything over that amount isn’t subject to the Social Security portion of this payroll deduction because it’s over the 2023 FICA limit.

How to Calculate FICA Tax (2023) for Incomes Below the Limit

For example, if an employee’s income is $68,300, you’d do one of the following:

1. Multiply $68,300 by 0.153 to calculate a total FICA tax burden of $10,449.90 for both the employer and employee, or
2. Multiply $68,300 by 0.0765 to calculate each party’s individual FICA tax withholding of $5,224.95.

How to Calculate FICA Tax (2023) for Incomes Above the Limit

If, on the other hand, an employee's income is $172,700, you’d follow these steps:

1. Multiply $160,200 by 0.153 for a total tax burden of $24,510.60.
2. Multiply the remaining $12,500 by 0.0145 (1.45%) for a total of $181.25 (this remainder is only subject to the Medicare portion).
3. Add $24,510.60 to $181.25 to reach the total FICA tax burden: $24,691.85.

Each party is responsible for an equal part of this total. To figure out the FICA tax withholding for the employer and employee separately, simply cut this total in half. The result is a payment of $12,345.93 each.

At What Salary Does FICA Stop?

FICA tax withholding typically gets lower overall as income increases, but a portion of it never stops. With Social Security, the 6.2% tax applies to earnings up to the annual wage base limit (e.g., $160,200 for 2023). You're not required to pay this portion of the tax on any income earned above this amount.

Medicare tax, however, isn’t subject to a salary limit. You're required to pay your share of Medicare regardless of the amount of money you make.

Does Everyone Pay FICA Taxes?

Not everyone is required to pay FICA taxes. This depends on an individual’s salary, occupation, and conditions of US residence.

Who Is Exempt from Paying FICA Taxes?

Generally, those exempt from paying all or a portion of the FICA tax include:

• Individuals who make above the IRS wage base limit for the year
• US federal government employees hired before 1984
• State and local government employees who have been with the same employer since March 31, 1986, are not covered under a Section 218 Agreement, and are part of a public retirement system
• Members of certain religious groups
• College students with on-campus jobs
• Most foreign students, scholars, teachers, researchers, and other individuals with temporary nonimmigrant, nonresident status
• Foreign citizens who work in the US for a foreign government
• Self-employed individuals who make less than $400

Is FICA a Federal Tax?

FICA is a US federal payroll tax, but it's not the same as income tax. Although they're both employment taxes deducted from employees’ paychecks, these are two separate components that are calculated differently. While FICA taxes only apply to earned income (salaries, wages, and bonuses), federal income tax applies to all income, regardless of how your employees earned it, including:

• Dividends
• Interests
• Capital gains
• Annuities
• Pensions

Is the FICA Tax the Same as Social Security?

FICA tax is not the same as Social Security, but they are connected—FICA taxes fund the Social Security program.

Can an Employer Get in Trouble for Not Withholding Employment and Federal Taxes?

Employers who fail to withhold employment and federal income taxes may be subject to criminal and civil sanctions. They're required by law to report income and employment taxes withheld from employees to the IRS through an Employer’s Quarterly Federal Tax Return (Form 941). These taxes should be deposited in full to an authorized bank or financial institution.

See IRS Publication 15, (Circular E), Employer's Tax Guide, for more information.