What is FICA Tax?

FICA and SECA taxes do not fund Supplemental Security Income (SSI) benefits, even though that particular program is run by the Social Security Administration (SSA). The Self-Employment Contributions Act (SECA) of 1954 requires the self-employed to pay taxes on their net earnings to help fund Social Security and Medicare. The FICA exemption period covers your first 5 calendar years of physical presence in the US if you are a full-time student at a US educational institution.

And if you’re self-employed, you’ll need to use the IRS worksheets to ensure you’re paying the correct amounts. Now that we have answered the question “What is FICA on my paystub?” and understood all its components, it is essential to keep in mind the benefits of paying what are billable hours time tracking tips to get you paid such taxes. As for calculating the FICA deduction on paystub with the correct rate, Real Check Stubs has you covered. FICA taxes could be overwhelming, especially for the self-employed, but they are essential in helping retirees and other qualified beneficiaries.

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Unlike the 6.2 percent Social Security tax and the 1.45 percent Medicare tax, the 0.9 percent surcharge is imposed only on the employee. You withhold the surtax from employee wages, but there is never a matching payment required by the employer. Unless your business is incorporated, you must pay both portions of the FICA tax for the employer and employee as a self-employed worker. Instead of the federal tax, your check stub would show “Self-Employment” tax in its place.

For 2023, these numbers remain the same — but the taxable minimum has risen from $147,000 to $160,200. This means that any earnings above this threshold should not be taxed toward Social Security. However, earnings over the taxable minimum are still subject to Medicare taxes.

  • FICA stands for the Federal Insurance Contributions Act and is the federal law requiring payroll contributions for the funding of Social Security and Medicare programs.
  • He feared that politicians would take and use the money for their own purposes.
  • This also includes resident aliens and many non-resident aliens.
  • However, none of their employers are required to withhold the 0.9 percent surtax because neither spouse earned over $200,000 from any one employer.

See, the Self-Employment Contributions Act (SECA) says you still have to contribute to Social Security and Medicare, even if you’re self-employed. That means you’ll shell out a total of $7,650 (7.65% of your taxable income) for FICA taxes. As we discussed above, when Congress passed FICA, the whole idea was to fund a retirement savings plan (Social Security) and insurance program (Medicare) for American workers. The amount of money you’ll receive in monthly Social Security benefits when you retire is based on a formula that looks at the average you earned during the 35 years in which you earned the most money. You can use the Social Security Administration’s calculator to estimate your benefits.

What Small-Business Owners Need to Know About FICA Taxes

If it’s above the wage base, you need to use the Social Security tax rate to wages up to the wage base and the Medicare tax rate to all compensation. The Federal Insurance Contribution Act, introduced in the 1930s, requires employers and employees to contribute to Medicare and Social Security programs. Commonly referred to as FICA, these taxes are automatically deducted from employee paychecks and matched by employers. Employers and employees have to pay FICA taxes to cover their social security and Medicare obligations. However, if the IRS considers you a self-employed business owner, you contribute to social security and Medicare by paying self-employment taxes (SECA taxes).

If an employee overpays, they should receive a refund when they file their tax return. If employees expect to underpay the Medicare surtax, they can make estimated tax payments throughout the year or ask for additional withholding on Form W-4. Business owners and other self-employed individuals pay the entire 15.3 percent of their wages. This is the same as the FICA deduction on paystub for employees. The amount due is calculated the same way and composes the same taxes, 12.4 percent for the Social Security tax and 2.9 percent for the Medicare tax.

Employers match the 1.45% rate but are not responsible for matching the 0.9% rate. FICA taxes include the Social Security tax of 6.2% (on wages up to $147,000), and 1.45% toward the Medicare tax. Both employers and employees are each responsible for paying this combined 7.65% of gross earnings for a total of 15.3%. To calculate FICA tax, simply multiply gross earnings by 7.65%. Again, this percentage includes 6.2% toward Social Security and 1.45% toward Medicare tax.

If you are self-employed, multiply your gross pay (up to $147,000) by 15.3%. Before the Great Depression, no support system existed for those unable to work due to disability or age, leaving a significant portion of Americans vulnerable. The taxes taken out of your paycheck for Social Security and Medicare are collectively referred to as FICA taxes. Many or all of the products featured here are from our partners who compensate us. This influences which products we write about and where and how the product appears on a page. Here is a list of our partners and here’s how we make money.

For the Social Security portion of FICA, both the employer and the employee pay 6.2 percent of gross compensation up to the Social Security wage base limit of $147,000, totaling 12.4 percent. Employers only withhold Social Security taxes up to this wage base limit, adjusted annually. Do not withhold Social Security taxes once the employee’s compensation exceeds this limit. Employers and employees must each pay 6.2% social security tax on gross annual pay up to $132,900 for the 2019 tax year and up to $137,700 for 2020.


Remember, you’re required to pay Social Security taxes only on earnings up to $147,000. Your Social Security and Medicare taxes add up to 7.65% of the money you make. Your employer will match that amount—and provide the government with total FICA taxes representing 15.3% of your earnings.

What is the FICA Tax and How Does It Work?

But you can generally deduct half of the FICA tax on your federal income tax return. This is true for any self-employed person earning more than $400 per year and who reports on and files IRS Form 1040 Schedule SE. Individuals with earned income of more than $200,000 ($250,000 for married couples filing jointly) pay an additional 0.9% in Medicare taxes. This includes salary, wages, tips, bonuses, commissions, and taxable fringe benefits. IRS Publication 15-B has a chart of various fringe benefits that are subject to FICA and those that are exempt (see Table 2-1).

They can answer your questions and help you figure out how the FICA tax will impact your tax bill. And hopefully, when you qualify for Social Security and Medicare, your benefits will be funded by people who are still in the American workforce then. That’s the idea, anyway, if the government doesn’t mess with it.

Any opinions expressed within materials are not necessarily the opinion of, or supported by, SurePayroll. We do not manage client funds or hold custody of assets, we help users connect with relevant financial advisors. Our SmartVestor program can connect you with a trustworthy investing pro who can help you make a plan for your retirement savings goals. Who knows when or even if the government will extend it beyond then! So putting all your retirement savings eggs in the Social Security and Medicare baskets is not a bright idea. If you have a simple tax return, you can file for free yourself with TurboTax Free Edition, or you can file with TurboTax Live Assisted Basic or TurboTax Live Full Service Basic at the listed price.

Calculating Payroll Taxes 101

For 2023, the new wage base is $160,200—a $13,200 increase and the largest wage base hike in history. The Medicare portion of FICA is 1.45% of all compensation subject to this tax, as explained above. For example, if an employee’s income for purposes of this tax is $200,000, the Medicare portion of FICA is $2,900 (1.45% x $200,000).

For the 2019 tax year, FICA tax rates are 12.4% for social security, 2.9% for Medicare and a 0.9% Medicare surtax on highly paid employees. Employers must withhold the employees’ share of these taxes and pay the employer’s portion. These taxes are directed first to the Internal Revenue Service and then passed on to the Social Security Administration for retirement and disability payments. Further, the Medicare tax funds the federal government’s Medicare trust for medical expenses for individuals aged 65 and older or those who qualify for disability.

Unlike Social Security taxes, your Medicare taxes don’t have a wage limit. If you earn more than $147,000, you’ll pay Medicare taxes on the full amount. PEOs serve as co-employers of your employees and handle payroll, benefits and taxes. You still retain control over your employees’ day-to-day responsibilities, but the PEO handles all HR and compliance tasks, including FICA tax administration.

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