FICA Taxes

FICA taxes, also referred to as payroll taxes, are paid by both employees and employers. The money then goes toward Social Security for retirees and beneficiaries of retirees. FICA, also known as the Federal Insurance Contributions Act, was introduced in 1935 to pay for Social Security.

Under the Social Security Act, FICA is in charge of paying monthly benefits to in excess of 41 million retirees and more than 60 million beneficiaries. Such FICA taxes help fund two important federal programs, including the Old-Age, Survivors, and Disability Insurance Trust (OASDI) and Medicare. Both programs assist senior citizens 65 years and older. More specifically, Medicare tax is provided by the Centers for Medicare & Medicaid Services, which is a branch of the Department of Health and Human Services (HHS). The funds are paid to qualifying retirees and the disabled for healthcare, hospice care, and hospital insurance. Notably, there is a third component to the FICA payroll tax, which is called the Medicare surcharge tax; this is a 0.9 percent tax added to taxpayers who earn more than $200,000 a year.

FICA Tax: How Much is it?

The total FICA tax is 15.3 percent in which the employee and employer split the percentage; therefore, each will be responsible for paying 7.65 percent. The Social Security portion (OASDI) is capped every year at a set amount whereas the Medicare portion is not taxed. Therefore, if you earn more money each and every year, you and your employer will still owe Medicare tax. However, if you make over a certain amount each year (depending on the wage cap), your employer will no longer need to pay. Medicare surcharge tax is incurred on all individuals earning at least $200,000 in annual income. Such compensation is inclusive of all wages, compensation, and self-employment earnings. But what if you are married? Would the same amounts apply to married couples filing a joint tax return? The specific thresholds are as follows:

  • $250,000 for married/filing joint
  • $125,000 for married/filing separately
  • $200,000 for single/head of household/qualifying widow(er)

However, from the employer’s perspective, it will be responsible for the 0.9 percent surtax regardless of the type of tax return being filed, as referenced above. Therefore, so long as its employee makes $200,000/year, the employer will be required to pay the 0.9 percent.

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