What Does the FICA Tax Consist Of?

The Federal Insurance Contributions Act (FICA) is a mandatory U.S. federal payroll tax deducted from the paychecks of most employees to fund Social Security and Medicare. Employers are also required to pay a matching amount on behalf of their employees. This system of contributions from both employees and employers ensures that funds are available for these social insurance programs.

The Two Components of FICA Tax

FICA tax is composed of two distinct parts. The first component is the Social Security tax, also known by its official name, Old-Age, Survivors, and Disability Insurance (OASDI). The funds from this tax are used to provide retirement income to individuals who have paid into the system, as well as benefits for their survivors. It also provides disability payments to workers who are unable to continue working due to a significant health condition.

The second component is the Medicare tax, sometimes referred to as the hospital insurance (HI) tax. This tax is designated to fund the Medicare program, which provides hospital insurance coverage for individuals who are 65 or older. The program also extends coverage to certain younger individuals who have specific disabilities or permanent kidney failure.

Tax Rates and Wage Limits

The FICA tax is calculated as a percentage of an employee’s taxable wages, with the employee and employer sharing the cost. For the Social Security component, the tax rate is 6.2% for the employee and a matching 6.2% for the employer. The Medicare component has a tax rate of 1.45% for the employee and 1.45% for the employer. This brings the combined FICA tax rate to 7.65% for the employee and 7.65% for the employer.

The Social Security tax has an annual wage base limit, which is a maximum amount of earnings subject to the tax each year. For 2025, the Social Security wage base limit is $176,100. Once an employee’s earnings exceed this amount in a calendar year, no more Social Security tax is paid on those additional earnings. In contrast, the Medicare tax does not have a wage base limit and applies to all of an employee’s covered wages.

The Additional Medicare Tax

Some higher-earning individuals are subject to an Additional Medicare Tax. This is a 0.9% tax that applies to wages and self-employment income above certain thresholds based on filing status. For 2025, the thresholds are:

• $250,000 for married couples filing jointly
• $125,000 for married individuals filing separately
• $200,000 for single filers and heads of household

This tax is paid only by the employee; there is no employer match. Employers are required to begin withholding this 0.9% tax from an employee’s pay once their wages exceed $200,000 in a calendar year. This withholding requirement applies regardless of the employee’s filing status or income from other sources.

FICA for Self-Employed Individuals

Individuals who work for themselves do not pay FICA taxes directly but are subject to a similar tax under the Self-Employment Contributions Act (SECA). The SECA tax is the equivalent of FICA for self-employed individuals, covering their contributions to both Social Security and Medicare. Because they are considered both the employee and the employer, they are responsible for paying both portions of the tax.

The SECA tax rate is a combined 15.3%, which breaks down into 12.4% for Social Security and 2.9% for Medicare, and is calculated on the net earnings from self-employment. The same Social Security wage base limit also applies to self-employed individuals. To account for the employer portion of the tax, self-employed individuals can deduct one-half of their total SECA tax payment as an adjustment to their income.