Do Employers Always Pay 7.65% for FICA Taxes?
Understand when employers pay the standard 7.65% FICA tax, the exceptions that apply, and how self-employment affects tax responsibilities.
Employers in the U.S. are responsible for paying a portion of Social Security and Medicare taxes, commonly referred to as FICA taxes. While many assume that employers always contribute 7.65% of an employee’s wages, there are situations where this may not apply.
Understanding when employers must pay this rate—and when they don’t—clarifies payroll costs and tax responsibilities.
Why 7.65 Is the Standard Rate
The 7.65% FICA tax consists of two parts: Social Security and Medicare. Social Security tax is 6.2% on wages up to an annual limit, which is $168,600 for 2024. Earnings above this threshold are not subject to Social Security tax. Medicare tax is 1.45% and applies to all wages without a cap. Together, these total 7.65%, the standard percentage employers contribute.
This rate is mandated by the Federal Insurance Contributions Act (FICA), which funds Social Security and Medicare. Social Security provides retirement, disability, and survivor benefits, while Medicare covers healthcare for individuals aged 65 and older. While the percentages have remained unchanged for decades, the Social Security wage base adjusts annually for inflation and wage growth.
Employer Obligations
Employers must withhold and remit FICA taxes based on employee earnings. The IRS requires businesses to deposit these taxes on a schedule determined by their total payroll tax liability. Employers with over $50,000 in payroll tax obligations during a lookback period must deposit semi-weekly, while smaller businesses may qualify for monthly deposits. Late deposits result in penalties ranging from 2% to 15% of the unpaid amount, depending on the delay.
Employers must also file Form 941 quarterly to report wages paid, taxes withheld, and their contributions. Businesses with an annual payroll tax liability under $1,000 may file Form 944 instead, consolidating reporting into a single annual filing. Filing errors can lead to IRS audits, additional tax liabilities, and interest charges.
Beyond federal requirements, businesses must comply with state payroll tax laws, which may include unemployment insurance and disability contributions. Some states, such as California and New Jersey, impose additional payroll taxes on employers. Noncompliance can result in fines, increased scrutiny, or, in extreme cases, business license revocation.
Exceptions for Certain Jobs
Not all employers pay the standard 7.65% in FICA taxes. Some government employees are exempt from Social Security taxes if they participate in a qualifying public retirement system. Teachers, police officers, and municipal workers in states like Texas, Ohio, and Massachusetts may not have Social Security taxes withheld, meaning their employers do not pay the 6.2% portion. However, Medicare tax obligations typically still apply unless a specific exemption is granted.
Household employers—those who hire domestic workers such as nannies, housekeepers, or caregivers—have different FICA tax requirements. In 2024, if a household worker earns less than $2,700 annually, the employer is not required to pay Social Security or Medicare taxes. Once earnings exceed this threshold, the employer must contribute the standard 7.65%. These payments are reported on Schedule H of the employer’s personal tax return.
Religious organizations can apply for an exemption from FICA taxes for their employees if they meet IRS criteria. This requires filing Form 8274, certifying that the organization opposes Social Security and Medicare benefits for religious reasons. Employees of exempt organizations do not have FICA taxes withheld, and their employer does not contribute either. However, these workers may be required to pay self-employment tax instead.
Self-Employed Considerations
Self-employed individuals must pay both the employee and employer portions of Social Security and Medicare taxes, totaling 15.3%. This includes 12.4% for Social Security on earnings up to $168,600 for 2024 and 2.9% for Medicare on all income. Those earning more than $200,000 (or $250,000 for married couples filing jointly) pay an additional 0.9% Medicare surtax, bringing their total Medicare tax rate to 3.8% on income above these thresholds.
To offset this burden, self-employed individuals can deduct the employer-equivalent portion—7.65%—as an adjustment to income on their tax return. This deduction is claimed on Schedule 1 of Form 1040 and does not require itemizing.
Estimated quarterly tax payments are required if total tax liability exceeds $1,000 for the year, with due dates in April, June, September, and January. Missing these deadlines can result in underpayment penalties, calculated using the federal short-term interest rate plus 3%.