What Is FICA Tax? How It Works and How To Calculate It in 2026?

FICA tax is a mandatory U.S. federal payroll tax that funds Social Security and Medicare. In 2026, the combined rate is 7.65%, paid by both employers and employees: 6.2% for Social Security on wages up to the annual wage base limit, plus 1.45% for Medicare on all wages, with an additional 0.9% Medicare tax withheld from employees earning more than $200,000. Self-employed workers cover both the employee and employer potions under a separate law called SECA.

Congress created the Federal Insurance Contributions Act (FICA) tax in 1935 to fund retirement benefits during the Great Depression. The program has expanded considerably since then. It now also pays disability benefits and survivor benefits to families of deceased workers. The Medicare portion was added in 1965 to help pay for health care costs for Americans 65 and older.

In 2026, the FICA tax rates haven’t moved, but the Social Security wage base rises to $184,500. Below, you’ll find what every employer needs to know about calculating, withholding, and reporting FICA payroll taxes this year, along with what’s changed under recent legislation.

What Is FICA Tax?

FICA is the U.S. federal payroll tax that bankrolls two of the largest social insurance programs in the country. Both employers and employees pay FICA. As an employer, you withhold the employee's share from each paycheck and contribute a matching amount on top. Both pieces go to the Internal Revenue Service (IRS), which routes the funds to the Social Security Administration and the Medicare trust funds.

The tax has two components:

• Social Security tax (6.2%): Officially called Old Age, Survivors, and Disability Insurance (OASDI), this portion provides benefits to retirees, workers with qualifying disabilities, and eligible family members like spouses, ex-spouses, and dependent children.
• Medicare tax (1.45%): This contribution gives employees access to premium-free Part A Medicare coverage when they become eligible, along with the option to enroll in Parts B, C, and D.

People sometimes use FICA and Social Security interchangeably. They're related but not identical. FICA is the umbrella tax that includes both Social Security and Medicare withholding, and the government uses the combined revenue to fund both programs.

What Is the FICA Tax Rate in 2026?

The FICA tax rate for 2026 remains 7.65% total, split evenly between employers and employees. The table below shows how the 2026 rates break down, along with the income thresholds that apply.

These FICA tax rates apply to what the IRS calls FICA wages. FICA wages are defined as the taxable compensation you pay an employee for their work, including:

• Salary and hourly 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).

One point that catches employers off guard is when employees defer pay into retirement plans like 401(k)s; those contributions still count as FICA wages even though they're exempt from federal income tax.

What Is the FICA Withholding Process?

Employers are responsible for two halves of every FICA payment — the share you withhold from each employee’s paycheck and the matching employer's portion. You'll submit both halves to the IRS, which forwards them to the Social Security Administration and to the Medicare trust that helps cover medical expenses for Americans 65 and older and people receiving disability benefits.

Self-employed workers don't pay FICA at all. Instead, they pay an equivalent called self-employment tax under the Self-Employed Contributions Act (SECA). SECA totals 15.3% (12.4% Social Security up to the wage base, plus 2.9% for Medicare).

How FICA Appears on Employee Paychecks

When employees ask, “what is FICA tax on my paycheck,” here’s the answer: most payroll systems list FICA as separate line items rather than one combined entry. On many paystubs, the Social Security portion is labeled as "Social Security," "SS Tax," "OASDI," or "FICA-SS," and the Medicare portion as "Medicare," "Med," or "Fed MED/EE." Year-end W-2s break the totals out the same way in Box 4 (Social Security) and Box 6 (Medicare).

Clear, consistent labels in your payroll system reduce employee questions and make reconciling year-end forms easier.

How To Calculate the FICA Tax Rate

FICA tax is one of the more straightforward calculations: a fixed percentage of eligible wages, with one wage cap on the Social Security side. Getting it 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 count as FICA wages:

• Salary, wages, commissions, bonuses, and tips
• Taxable fringe benefits, including employer-paid moving expense reimbursements for non-military employees, taxable prizes, and awards)
• Salary reductions 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 to the annual Social Security wage base ($184,500 for 2026). Then, determine which FICA rate 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 limit, and continue applying 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 employee withholding first, then apply an equal amount to match your payroll liability for FICA tax deductions.

What Percentage of FICA Taxes Are Social Security Withholdings?

The Social Security tax is the larger of the two, sitting at a flat 6.2% of each employee's FICA wages up to a yearly cap. The cap, known as the wage base limit, increases annually with the cost of living.

The 2026 wage base is $184,500, up from $176,100 in 2025. That puts the maximum Social Security withholding an employee can pay at $11,439 for the year. Again, this represents only the employee's share. As an employer, you match that amount exactly, effectively doubling the contribution to $22,878 per employee who reaches the wage base limit.

What Percentage of FICA Taxes Are Medicare Withholdings?

Medicare is the smaller piece at 1.45% of all eligible compensation, but it has one crucial difference from Social Security: there is no wage base limit. Every dollar your employees earn is subject to Medicare tax, no matter how high their salary climbs.

For example, for an employee earning $80,000 per year, the Medicare contribution of FICA comes to $1,160 ($80,000 × 1.45%), and your business owes the same $1,160 as the employer match.

FICA Tax Examples

Looking at real numbers helps clarify how payroll processing works for these deductions. The table below shows FICA calculations for three biweekly pay periods at different salary levels: entry-level position, middle manager, and executive compensation. It also calculates the total tax deposit amount for each.

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.

Most compensation is subject to FICA, but the IRS recognizes specific exemptions. If your employee qualifies for one, your business can remain compliant while potentially reducing payroll costs. Common FICA tax exemptions include:

• Payments to general or limited partners of a partnership
• Employer contributions to qualified retirement accounts on behalf of employees
• Compensation to salespeople who meet IRS criteria for statutory nonemployee status
• Wages paid to student employees attending classes at the school where they work
• Employee gratuities totaling less than $20 monthly
• Family employees under 18 working in a family-owned sole proprietorship or partnership
• Certain payments to nonresident workers in the U.S. (see IRS guidance)

Be sure to consult with tax experts if you have any questions regarding whether an exemption applies

2026 FICA Tax Changes and Updates

The core FICA tax structure for 2026 looks much like it did last year. Rates are unchanged at 6.2% for Social Security, 1.45% for Medicare, and an additional 0.9% on employee wages above $200,000. What's different is the wage base and a handful of indirect changes flowing from the One Big Beautiful Bill Act (OBBBA), which became law in July 2025.

Key updates to know for 2026:

• A higher Social Security wage base. The cap rose from $176,100 to $184,500, about a 4.8% jump for 2026. That raises the maximum employee Social Security tax from roughly $10,918 to $11,439, with employers matching dollar-for-dollar.
• Moving expense reimbursements are now permanently taxable. OBBBA made permanent the suspension of the income exclusion for employer-paid moving expense reimbursements. For all employees outside the military and certain intelligence community personnel, those payments are wages and are subject to FICA. If your relocation policy still treats reimbursements as nontaxable, it needs to be updated.
• "No tax on tips" doesn't apply to FICA. OBBBA created a new individual income tax deduction for qualified tips through 2028, but Social Security and Medicare tax still apply to every reported tip dollar. Continue withholding FICA on tips as usual.
• The FICA tip credit expanded to beauty service businesses. Restaurants and bars have long been able to claim a credit for the employer share of FICA paid on tips above the federal minimum wage threshold. OBBBA broadened that credit to include certain beauty service employers. If you run a salon or similar business, this is worth a closer look with your tax advisor.
• Trump Accounts don't change FICA. The new child savings accounts created by OBBBA are funded with after-tax dollars and don't affect how payroll taxes are calculated or withheld.

If any of these changes affect your payroll setup, talk with your payroll provider or tax advisor before your next deposit cycle.