What Is FICA Tax and How Is It Calculated?
Demystify a core payroll deduction. Learn its fundamental nature and the mechanisms that govern its application to your income.
FICA, or the Federal Insurance Contributions Act, is a mandatory payroll tax for nearly every working individual in the United States. It funds significant federal social insurance programs. It is a direct deduction from an employee’s gross wages, supporting these programs. FICA taxes are a standard aspect of employment and self-employment, ensuring contributions.
Understanding FICA’s Components
FICA is divided into two distinct taxes: Social Security tax and Medicare tax. The Social Security tax, formally known as Old-Age, Survivors, and Disability Insurance (OASDI), is established under 26 U.S. Code § 3101. This component funds retirement benefits for eligible individuals, disability benefits, and survivor benefits for families of deceased workers. The Medicare tax, also referred to as Hospital Insurance (HI), funds healthcare services. These services include hospital stays, skilled nursing care, and some home health services for individuals aged 65 and older, as well as those with qualifying disabilities or end-stage renal disease.
Who Pays and How FICA is Calculated
FICA contributions are shared between employees and employers. For 2025, the Social Security tax rate is 6.2% for employees and an equal 6.2% for employers, totaling 12.4%. The Medicare tax rate for 2025 is 1.45% for employees and 1.45% for employers, making a combined 2.9%. This means a portion is withheld from an employee’s paycheck, and their employer contributes a matching amount.
Self-employed individuals are responsible for paying both the employee and employer portions of FICA taxes, known as Self-Employment Contributions Act (SECA) tax, as outlined in 26 U.S. Code § 1401. For 2025, the combined self-employment tax rate is 15.3% of net earnings from self-employment, comprising 12.4% for Social Security and 2.9% for Medicare.
A key distinction in FICA calculation is the taxable wage base for Social Security. For 2025 earnings, the maximum income subject to Social Security tax is $176,100. Earnings above this limit are not subject to the Social Security portion of FICA. In contrast, there is no wage base limit for Medicare tax, meaning all earned income, regardless of the amount, is subject to the 1.45% employee and 1.45% employer Medicare tax.
An Additional Medicare Tax applies to higher earners, as specified in 26 U.S. Code § 3101. This additional tax is 0.9% and applies to earned income exceeding certain thresholds: $200,000 for single filers, $250,000 for married couples filing jointly, and $125,000 for married individuals filing separately. Employers are required to withhold this additional 0.9% once an employee’s wages surpass $200,000 in a calendar year, but there is no employer matching contribution for this additional tax.
To illustrate FICA calculation for an employee, consider someone earning $70,000 annually. For Social Security, the employee would pay $70,000 0.062 = $4,340, and the employer would also pay $4,340. For Medicare, both employee and employer would pay $70,000 0.0145 = $1,015 each. If an employee earns $200,000, they would pay $10,918.20 in Social Security tax (6.2% of the $176,100 wage base) and $2,900 in Medicare tax (1.45% of $200,000). The employer would match these amounts.
For an employee earning $275,000, the Social Security calculation remains $10,918.20. For Medicare, the employee would pay $275,000 0.0145 = $3,987.50, plus an additional Medicare tax of ($275,000 – $200,000) 0.009 = $675, for a total employee Medicare tax of $4,662.50. The employer would pay $3,987.50 for Medicare, but no additional Medicare tax.
A self-employed individual with $70,000 in net earnings would pay $70,000 0.124 = $8,680 for Social Security and $70,000 0.029 = $2,030 for Medicare, totaling $10,710.