FICA Tax Rate

The FICA tax rate is the mandatory payroll tax that employers withhold from their employees' wages. The money that's withheld goes to the government. Several types of payroll taxes exist, including:

  • Unemployment
  • Income
  • FICA, or Federal Insurance Contributions Act

Along with deducting FICA from employee wages, employers are also legally required to pay the IRS as well as contribute an equal or matching amount per employee contribution.

Under FICA, there are two types of taxes:

  • Social security
  • Medicare

The taxes that are deducted for Social Security pay for a range of federal programs that provide funding assistance for:

  • The disabled
  • Retirement
  • Survivors of a deceased employee

Medicare taxes provide funding aid in areas such as hospice care and healthcare.

Business owners are required to pay taxes related to Social Security and Medicare. Self-employed workers are required to pay self-employment taxes, or SECA taxes, and these taxes are based on regulations found in the Self-Employed Contributions Act.

Calculating FICA Tax Rates

Since their introduction, FICA and SECA tax rates have increased. Until the close of 1959, employers and employees paid no more than 3 percent on social security taxes. Medicare tax rates were 0.35 percent in 1966, when they were introduced, and by 1985, they were 1.35 percent. Taxes were split between employees and their employers.

The tax rate for Social Security in 2017 is 6.2 percent. This applies to the first $127,200 that an employee earns. For the first $200,000 in wages, the Medicare tax rate is 1.45 percent; wages above $200,000 have a Medicare tax rate of 2.35 percent. Each party pays a percentage of 7.65 of income, so the total FICA contribution is 15.3 percent.

If you want to calculate your FICA tax burden, multiply your gross pay earnings by 7.65 percent. However, self-employed workers pay the full FICA tax themselves, and this breaks down to 12.4 percent for Social Security taxes and 2.9 percent in Medicare tax. Self-employed workers can deduct 7.65 percent of the tax, or approximately half, when they file their tax returns.

What are Wage Base Limits?

Due to inflation, the wage limit changes nearly every year. This wage base limit applies to the employees who pay Social Security taxes. Gross income that falls above a certain threshold is therefore exempt from this tax. In 2016, the wage base limit was $118,500, while in 2017, it was $127,200. When figuring out the size of Social Security benefits, this income ceiling is the maximum amount of money that will be considered for these calculations.

There's no wage limit on Medicare taxes. Since the beginning of 2013, high-income parties are required to pay an Additional Medicare Tax. The tax rate for Additional Medicare is 0.9 percent; this tax applies to an employee's:

  • Salary
  • Wages
  • Tips

This is also the case for self-employed workers, and any part of income that is higher than a certain amount will be taxed at 2.35 percent.

Married couples currently have an income ceiling of $250,000 when they file tax returns jointly. If a couple files separately, the ceiling is $125,000. The income ceiling is $200,000 for:

  • Qualifying widows
  • Single filers
  • Head of household filers

You can use form 8959 to figure out how much you owe in Additional Medicare Tax.

Exemptions

While most people have to pay FICA taxes, there are some exceptions. Even some non-resident aliens and resident aliens are required to pay FICA taxes. There's no difference for part-time or full-time employees. Exceptions include:

  • College students who earn wages from an on-campus job
  • Some religious group members, such as the Amish, who apply for a FICA exemption by filing Form 4029 with the IRS
  • The total monthly tip amount you earned if it's less than $20
  • Certain non-resident aliens, which may include teachers and foreign government employees
  • Non-resident aliens may have exemption (but only for a limited time) if they're on F-1 or J-1 visas
  • Federal employees who have worked continuously for the government since the end of 1983 or earlier and who also are covered by a retirement system. While they're exempt from Social Security tax, they're not exempt from Medicare tax.
  • Beneficiaries of employees are exempt from FICA tax on the deceased worker's wages for the year after the employee's death
  • In businesses that are partnerships, payments to partners are exempt from FICA tax

College students who earned wages in the summer and who aren't registered for summer classes are subject to withholding for Social Security and Medicare. Anyone who doesn't pay payroll taxes waives his or her right to enjoy the benefits of Medicare and Social Security.

How to Pay FICA

When an employer withholds the FICA payroll tax from his or her employees' wages as well as contributes a matching amount, the employer is responsible for depositing and reporting the taxes before the deadline on employment tax. After you run payroll, the deposits are due.  

Before the beginning of every year, you'll need to determine your particular deposit schedule. You may be a monthly or semiweekly depositor, so knowing which schedule you're on will ensure you're depositing FICA taxes correctly. Your schedule is determined by the total tax liability that's reported during a lookback period of four quarters, as listed on Form 941.

Bottom Line on FICA Tax

In most cases, don't expect to get around FICA taxes. While FICA taxes may seem to be a sizeable portion of your earnings, they're very important for providing the necessary funding for Social Security and Medicare programs.

You should pay attention to how much FICA taxes are automatically deducted from your wages to ensure you're not paying more than you're legally required to. Use the IRS worksheets to make sure you're paying the right amount if you're self-employed.

If you need more information, the help line for the Social Security Administration, or SSA, is 1-800-772-1213.

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