- Taxes
- Article
- 6 min. Read
- Last Updated: 04/15/2025
FICA Tax: What Does It Mean and How Is It Calculated in 2025?
Table of Contents
The Federal Insurance Contributions Act (FICA) tax — split equally between you and your employees — funds Social Security and Medicare benefits that protect Americans at every life stage. Founded in 1935 during the Great Depression, the FICA tax initially paid benefits to retirees. It now covers not only retirement benefits but also disability benefits and benefits for workers' survivors. The Medicare tax was added in 1965, helping to pay for medical coverage primarily for those aged 65 and older.
Learn more about payroll taxes and how to calculate FICA taxes with Paychex.
What Is FICA Tax?
Understanding the meaning of FICA is essential: It refers to a U.S. federal payroll tax that both employees and employers must pay. The tax consists of 2 main components:
- Social Security tax (6.2%): Also known as Old Age, Survivors, and Disability Insurance (OASDI), this portion provides benefits to retirees, disabled individuals under retirement age, and eligible family members, including spouses, former spouses, and in some cases, dependent children.
- Medicare tax (1.45%): This contribution qualifies employees for premium-free Part A Medicare coverage when they become eligible while allowing access to optional coverage through Parts B, C, and D.
This table outlines the percentage of FICA and separates what the employer pays vs. what the employee pays.
| FICA Component | Employer Pays | Employee Pays | Income Limits (2025) |
|---|---|---|---|
| Social Security tax | 6.2% | 6.2% | $176,100 |
| Medicare tax rate | 1.45% | 1.45% | None |
| Additional Medicare tax withheld | 0% | 0.9% | Above $250,000 (married filing jointly), $125,000 (married filing separately), $200,000 (single) |
The FICA tax rate is applied to all taxable compensation, including:
- Salary and wages
- Tips reported by employees
- Bonuses and commissions
- Taxable fringe benefits
For specific guidance, IRS Publication 15-B has a chart of various fringe benefits subject to FICA and those exempt (see Table 2-1 on page 6).
It's worth noting that even when employees contribute to retirement plans like 401(k)s, these amounts remain subject to FICA taxes, though they're exempt from income tax.
What Is the FICA Withholding Process?
Employers must withhold the employees' share of FICA taxes and the employer's portion. You'll submit these taxes to the Internal Revenue Service (IRS), which then directs them to the Social Security Administration to fund retirement and disability payments.
The remainder is transferred to the federal government's Medicare trust to cover medical expenses for individuals aged 65 and older or those who qualify for disability benefits.
How To Calculate the FICA Tax Rate
FICA tax follows a straightforward formula: a fixed percentage applied to compensation. Getting these calculations right is the cornerstone of your company's payroll accuracy and compliance. The following steps break down exactly how to calculate FICA taxes:
Step 1: Identify All FICA-Eligible Compensation
Examine your payroll records to identify all forms of payment that require FICA withholding. Remember, FICA applies to all taxable compensation:
- Salary, wages, commissions, bonuses, and tips
- Taxable fringe benefits (e.g., reimbursement for moving expenses, taxable prizes, and awards)
- Salary reduction amounts for contributions to 401(k)s and similar plans
Step 2: Check Against the Social Security Wage Base Limit
Compare each employee's year-to-date earnings against the annual Social Security wage base ($176,100 for 2025). Then, determine which FICA calculator applies:
- If an employee's earnings are below the wage base, apply the full 7.65% FICA rate
- If an employee's earnings exceed the wage base, apply the 6.2% Social Security portion only up to the wage base limits, then continue applying just the 1.45% Medicare portion to all earnings beyond that threshold
Step 3: Match Your Employee's FICA Tax Withholdings
As an employer, you're responsible for matching your employees' FICA contributions dollar-for-dollar. Calculate the amount withheld from each employee's compensation, then apply an equal amount to the employer's obligation for FICA tax deductions.
What Percentage of FICA Taxes Are Social Security Withholdings?
The Social Security tax — the larger portion of FICA — is a flat 6.2% of each employee's eligible compensation, but only up to a specific dollar amount. This threshold, known as the wage base limit, increases annually with the cost of living.
The wage base increased from $168,600 to $176,100 in 2025. This cap means the maximum Social Security withholding an employee could pay is $10,918.20. Again, this represents only the employee's share. As an employer, you match this amount exactly, effectively doubling the contribution to $21,836.40 per employee who reaches the wage base limit.
What Percentage of FICA Taxes Are Medicare Withholdings?
The Medicare portion of FICA is 1.45% of all eligible compensation — with one crucial difference from Social Security: there is no wage base limit. This means Medicare tax applies to every dollar of taxable compensation your employees earn.
For example, if an employee's income for purposes of this tax is $80,000 annually, the Medicare portion of FICA is $1,160 ($80,000 × 1.45%). The employee and the employer each pay this amount.
FICA Tax Examples
When it comes to FICA taxes, seeing actual calculations helps clarify how payroll processing works for these deductions. The table below shows FICA tax examples based on a bi-weekly pay schedule across different salary levels — entry-level position, middle manager, and executive compensation. It also calculates the total tax deposit amount for each employee.
| Entry-Level Worker | Middle Manager | Executive Director | |
|---|---|---|---|
| Taxable Wages per Pay Period | $1,732.00 | $3,325.00 | $8,192.00 |
| Social Security Tax (Employee 6.2%) | $107.38 | $206.15 | $507.90 |
| Medicare Tax (Employee 1.45%) | $25.11 | $48.21 | $118.78 |
| Social Security Tax (Employer 6.2%) | $107.38 | $206.15 | $507.90 |
| Medicare Tax (Employer 1.45%) | $25.11 | $48.21 | $118.78 |
| Total FICA Tax Deposit Amount | $264.98 | $508.72 | $1,253.36 |
FICA Tax Exemptions
Most compensation is subject to FICA taxes, but there are a few areas where a business may not need to withhold FICA taxes. If your employee falls under an exemption, your business can remain compliant while potentially saving on payroll costs.
FICA exemption rules can vary by state, so what qualifies in one location might not apply in another. That said, here are common FICA tax exemptions you should know about:
- Payments to individuals with partnership status (both general and limited)
- Employer deposits into qualified retirement accounts for employees
- Compensation to salespeople who meet the IRS criteria for statutory nonemployee status
- Wages paid to student employees working at the school where they're enrolled and regularly attending classes
- Employee gratuities totaling less than $20 monthly
- Family employees under 18 working in a family-owned sole proprietorship or partnership
- Some payments to non-U.S. residents working in the U.S. (see IRS guidance for exemptions)
Be sure to consult with tax experts if you have any questions regarding the above.
Common FAQs About FICA Taxes
These frequently asked questions address employers' most common concerns when managing FICA compliance.
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Can Employers Write Off FICA Taxes?
Can Employers Write Off FICA Taxes?
Yes. Your business can take a FICA deduction for matching FICA contribution as a business expense. However, you cannot deduct the portion withheld from employee paychecks.
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Can Employees Deduct FICA Taxes?
Can Employees Deduct FICA Taxes?
No. Employee tax deductions for FICA are not eligible for income tax deductions. These are non-deductible payroll taxes.
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Do Employers Pay FICA Taxes on Employee Tips?
Do Employers Pay FICA Taxes on Employee Tips?
Employers must calculate FICA on tips employees report to them. Employer tax liability also includes the employer share of FICA on unreported tips, though this obligation only arises after IRS notification.
Several industries can participate in voluntary tip compliance programs:
- Tip Reporting Alternative Commitment (TRAC)
- Tip Rate Determination Agreement (TRDA)
- Gaming Industry Tip Compliance Agreement (GITCA)
Employers may qualify for a FICA tip credit if the tips used to calculate FICA exceed the federal minimum requirement.
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Are There Additional Employer Responsibilities for FICA Taxes?
Are There Additional Employer Responsibilities for FICA Taxes?
Withholding FICA and depositing FICA taxes with the government is just the beginning of your employer obligations. To maintain full compliance, you must also:
- Submit employer tax returns that document all FICA transactions — filed quarterly for most businesses or annually for very small employers
- Properly report all Social Security contributions and Medicare tax payments on each employee's Form W-2 at year-end
Remember, these responsibilities fall under employee tax liability only. You have no FICA obligations for independent contractors or workers employed by another company, such as temporary staff hired through an agency.
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At What Income Level Does the FICA Medicare Tax Increase?
At What Income Level Does the FICA Medicare Tax Increase?
High-earning employees face an additional Medicare tax that requires special attention from employers. Once an employee's compensation exceeds $200,000 in a calendar year, you must withhold an extra 0.9% Medicare tax from all earnings above this wage threshold, regardless of the individual's filing status. But employers do not match this 0.9% tax — it falls entirely on the employee. Your responsibility is to withhold, remit, and report the correct amount, and you cannot deduct any portion of this additional tax.
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Do Self-Employed Individuals Pay FICA Taxes?
Do Self-Employed Individuals Pay FICA Taxes?
Self-employed individuals don't pay FICA. Instead, they pay an equivalent called self-employment tax under the Self-Employed Contributions Act (SECA), established in 1954, to cover their Social Security and Medicare contributions. More specifically, self-employed individuals pay the employee and employer share (even though they are neither employees nor employers). One-half of self-employment tax is deductible by self-employed individuals from their gross income (no itemizing is required).
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What If an Employee Works for Two Corporations that Are Related to Each Other?
What If an Employee Works for Two Corporations that Are Related to Each Other?
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What Is the FICA Common Paymaster Rule?
What Is the FICA Common Paymaster Rule?
To use the common paymaster rule, the parties must be related. For purposes of this rule, these parties are related if any of the following 4 conditions are met:
- The corporations are members of a controlled group of corporations (this is based on stock ownership).
- If the corporation doesn't issue stock, then at least 50% of the board of directors of one corporation is on the board of directors of another corporation, or at least 50% of the voting power to select such members is concurrently held by holders of more than 50% respect to the other corporation.
- Fifty percent of the officers of one corporation are also officers of the other.
- Thirty percent of employees of one corporation work concurrently for the other(s). If the related corporations agree, they can designate which one is treated as the employer, referred to as the "common paymaster," for purposes of FICA withholding. This common paymaster is responsible for FICA on the employee's wages, regardless of whether the employee receives a consolidated payment at multiple corporations or several paychecks for this work. However, all corporations in the group remain jointly and individually liable for this payroll tax.
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What If an Employer Withholds Too Much FICA Tax from an Employee's Pay?
What If an Employer Withholds Too Much FICA Tax from an Employee's Pay?
If you over-withhold FICA from an employee's pay, you should take steps to correct the problem. Here are your options:
- Refund the excess withholding to the employee. This can be done by taking out less from the employee's paycheck to offset the excess withholding. This is usually a good option.
- File a claim with the IRS to recoup the excess payment. This may be necessary if the employee is no longer on your payroll and there are no other options to adjust future withholding.
Use Form 941-X, Adjusted Employer's Quarterly Federal Tax Return or Claim for Refund, or Form 944-X, Adjusted Employer's Annual Federal Tax Return or Claim for Refund, to adjust withholding or a claim for refund. If you do nothing, the employee can claim the excess payment as a tax credit on an income tax return.
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How Do You Pay and Report FICA Taxes?
How Do You Pay and Report FICA Taxes?
As an employer, you have specific obligations for depositing FICA taxes and reporting them to both the IRS and your employees:
- Depositing FICA: You must electronically deposit all payroll taxes, including FICA. A limited exception exists for small employers with annual payroll taxes under $1,000, who may pay by check. Your deposit schedule depends directly on your payroll size.
- Reporting FICA to the IRS: Most employers report FICA payments quarterly using Form 941. Again, small employers may qualify to file annually using Form 944.
- Reporting FICA to employees: FICA withholding must appear on each employee's pay stub, and year-end W-2 forms must show the total FICA withheld throughout the year.
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Is FICA Social Security?
Is FICA Social Security?
FICA and Social Security aren't synonymous, but they are related. FICA includes the combined taxes withheld for Social Security and Medicare. The government collects FICA taxes to help fund these programs.
Managing FICA Tax Responsibilities With Paychex
FICA tax rates and rules can change unexpectedly — as we witnessed during COVID-19 when the government provided critical payroll tax relief for struggling businesses. Regardless of what happens in the future, consider working with a payroll provider for help with your current payroll tax responsibilities.
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