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Takeaway
The Federal Insurance Contributions Act (FICA) helps generate funding for the nation’s largest social insurance programs: Social Security and Medicare. FICA tax is split between the employee and employer. Read how FICA works, how it’s calculated and how you can comply with confidence.
Have you ever seen “FICA” on your paycheck and wondered what it meant?
If you lived or worked in the United States in 2024, your FICA tax contributed to $1.71 trillion in federal funding — that’s 35% of total government revenue! Funds from the Federal Insurance Contributions Act (FICA) help finance the nation’s largest social insurance programs: Social Security and Medicare. Millions of retirees, beneficiaries and people with disabilities rely on these benefits, but workers aren’t the only ones who fund them. Employees and employers are responsible for paying FICA taxes.
Let’s take a closer look at what FICA is, how it works and how you can navigate this tricky payroll tax with confidence.
What is FICA (Federal Insurance Contributions Act)?
FICA generates money for Social Security and Medicare programs through taxes imposed on nearly every employee and employer in the United States. Signed under the Social Security Act of 1935, FICA was first enacted to provide financial benefits for retired workers aged 65 or older. In 1965, FICA expanded with the passage of the Medicare Act, a law that established a health insurance program for the elderly. Today, FICA provides the funding for both.
What does FICA tax include, and how does it work?
FICA is a U.S. federal payroll tax that is automatically deducted from an employee’s paycheck. But exactly how much is FICA tax? That depends on if you’re an employee or employer. FICA combines Social Security and Medicare taxes for a total rate of 15.3%, but the cost is split between each party.
Specifically, 6.2% of an employee’s FICA taxable wages go to Social Security tax and 1.45% of their gross wages go to Medicare tax. The employer must match these percentages for a grand total of 15.3%.
Your nine-digit Social Security number tracks how much you pay. Employees earn credits for Social Security benefits as they continue to work and pay FICA taxes. The Social Security Administration uses the number of credits you’ve earned to determine your eligibility for Medicare, retirement or disability benefits and your family’s eligibility for survivor benefits once you reach retirement age.
Employee and employer FICA contributions
Employers are legally obligated to withhold 6.2% for Social Security taxes and 1.45% for Medicare taxes from an employee’s FICA taxable wages. Employers must match employee contributions dollar for dollar.
In other words, paying FICA taxes is mandatory. However, it’s important to note that this tax only applies to an employee’s earned income. This includes:
- salary
- wages
- bonuses
- tips
- commissions
- taxable fringe benefits
Unearned income, sometimes called passive income, is exempt from FICA tax. This includes investment-type income such as taxable interest, ordinary dividends and capital gain distributions.
2025 FICA tax rates and limits
According to the IRS, FICA taxes include old-age, survivors and disability insurance taxes (Social Security), and hospital insurance taxes (Medicare). Different rates apply for each.
Social Security
- The current Social Security tax rate is 6.2% for employees and 6.2% for employers, or 12.4% total.
Medicare
- The current Medicare tax rate is 1.45% for employees and 1.45% for employers, or 2.9% total.
- Employers must withhold an additional 0.9% when an employee’s wages exceed $200,000 in a calendar year. There is no employer match for the Additional Medicare tax withholding rate.
Essentially, each party pays 7.65% of their earnings for a total FICA contribution of 15.3%.
| FICA tax | Employer tax rate | Employee tax rate | 2025 wage limit |
| Social Security tax | 6.2% | 6.2% | $176,100 |
| Medicare tax | 1.45% | 1.45% | N/A |
| Total | 7.65% | 7.65% | 15.3% |
| Additional Medicare tax | N/A | 0.9% (On earnings over $200,000 for single filers.) |
What is the maximum FICA taxable income amount?
Social Security limits the amount of income subject to taxation. For 2025’s earnings, that limit is $176,100. This amount is also referred to as the “wage base limit” or the “taxable maximum.” It changes every year depending on the national average wage index. However, this limit only applies to employees who pay Social Security taxes. There is no wage base limit for Medicare taxes.
In this instance, any employee who earned $176,100 or more in 2025 would contribute $10,918.20 to Social Security. Remember, the employer must match employee contributions dollar for dollar, so they would also pay $10,918.20 in Social Security taxes.
How to calculate FICA taxes
To calculate an employee’s FICA taxes, multiply their FICA taxable wages by the current Social Security and Medicare tax rate. This number will also tell you the employer contribution.
Social Security tax
To calculate the Social Security tax:
- Employee’s FICA taxable wages x 6.2% = Social Security tax contribution
Medicare tax
To calculate the Medicare tax:
- Employee’s FICA taxable wages x 1.45% = Medicare tax contribution
Total FICA tax
To calculate the total FICA tax:
- Social Security tax contribution + Medicare tax contribution = total FICA tax
Here’s a helpful visual to show how to calculate FICA taxes for an employee whose FICA taxable wages were $4,000 for the pay period.
| Employee’s FICA taxable wages | Social Security tax rate | Social Security tax contribution |
| $4,000 | 6.2% | $248 |
| Employee’s FICA taxable wages | Medicare tax rate | Medicare tax contribution |
| $4,000 | 1.45% | $58 |
| Employee’s total FICA tax (per pay period) | $306 | |
| Employer FICA match | Social Security tax rate | Social Security tax contribution |
| $4,000 | 6.2% | $248 |
| Employer FICA match | Medicare tax rate | Medicare tax contribution |
| $4,000 | 1.45% | $58 |
| Employer’s total FICA tax (per pay period) | $306 | |
| Total FICA tax | $612 | |
FICA exemptions
Foreign students temporarily present in the United States in F-1, J-1 or M-1 status for less than five calendar years may be exempt from FICA tax on wages paid to them for services performed in the United States, according to the IRS.
FICA may exempt full-time students for the first five calendar years they live in the United States. If they are not a full-time student, the FICA exemption may cover their first two years.
Other tax rates to know
Payroll taxes take many forms, but every employer should understand how current tax rates affect their people and the places they operate.
SUTA tax
The State Unemployment Tax Act (SUTA) — also known as “state unemployment insurance” (SUI) — is a payroll tax required from employers. States place these taxes into their unemployment funds to pay benefits to employees who have separated from their employer.
Failing to pay SUTA can result in:
- fines
- penalty fees
- criminal charges to the employer
SUTA contribution rates vary by state. The state unemployment agency determines the contribution rates for positive-rated employers and negative-rated employers annually. Employers with a positive reserve ratio receive the lowest tax rates, while negative-ratio employers may encounter substantially higher rates.
You can use this comprehensive resource to verify the SUTA rates of states relevant to your employees and comply with confidence.
FUTA tax
The Federal Unemployment Tax Act (FUTA) generates money for national unemployment programs through taxes imposed on nearly any business with more than one worker. FUTA taxes fall on employers, not their staff. However, FUTA rates must be derived from employees’ wages.
The current FUTA tax rate is 6% of the first $7,000 a business pays to an employee each year. Enterprises and larger employers can expect to pay more FUTA taxes, though their rate per worker won’t change.
While the initial $7,000 is known as the “FUTA wage base,” SUTA may modify this base. Plus, employers that pay their federal and state unemployment taxes in full may have the opportunity to earn a tax credit worth up to 5.4% of their FUTA taxable wages. This credit may reduce a company’s FUTA tax burden to just 0.6%.
When states lack funds for unemployment benefits, they can take Federal Unemployment Trust Fund loans. However, if a state has outstanding loans for two consecutive years and doesn’t repay the full amount by Nov. 10 of the second year, its FUTA credit rate for employers will be reduced until the loan is repaid.
SECA tax
The Self-Employment Contributions Act (SECA) tax applies to individuals who are self-employed and do not work for an employer. SECA requires self-employed people to cover both the employee and employer portion of the FICA tax. This helps ensure the same coverage under social insurance programs, like Medicare and Social Security, once a self-employed person reaches retirement.
Since self-employed taxpayers are defined as both the employee and employer, they are taxed at a rate of 12.4% (6.2% + 6.2%). Their earnings are capped at $176,100 in 2025 — just like FICA. Any gross wages above this amount are not subject to Social Security tax.
The Medicare tax rate is 2.9%, but there is no income cap for Medicare. This brings the total tax rate to 15.3% for self-employed workers.
State-mandated taxes
Some states levy payroll taxes to help finance employee programs and benefits. The rates and requirements vary by state.
Paid family and medical leave
While the federal Family and Medical Leave Act (FMLA) allows workers to take unpaid leave, it doesn’t provide pay during that time. Some states have enacted their own paid leave programs to help fill that gap. The tax rates associated with these programs differ.
Employment training
California’s Employee Training Tax (ETT) is paid by employers to fund workforce development programs in specific industries. The tax is aimed at building a more competitive and productive workforce. The ETT rate for 2025 is 0.1%.
Disability
A handful of states have enacted disability insurance programs to provide financial assistance to employees who are unable to work due to illnesses or injuries unrelated to their jobs. The program details and rates vary by state.
FAQ
Do employers have to match FICA rates?
Yes. FICA combines Social Security and Medicare taxes for a total of 15.3%, but the cost is split between the employer and employee. 6.2% of an employee’s FICA taxable wages go to Social Security tax and 1.45% of their FICA taxable wages go to Medicare tax. The employer must match these percentages for a grand total of 15.3%.
Which taxes are included in FICA?
FICA taxes include old-age, survivors and disability insurance taxes (Social Security) and hospital insurance taxes (Medicare).
Is Social Security the same as FICA?
No. FICA generates money for Social Security and Medicare programs through taxes imposed on nearly every employee and employer in the United States.
What is the difference between FICA tax and federal tax?
FICA taxes only apply to earned income, including salaries, wages, bonuses, tips, commissions and taxable fringe benefits. Federal income tax applies to earned and unearned income, which includes taxable interest, ordinary dividends and capital gain distributions.
What are the FICA requirements?
FICA requires employers to withhold 6.2% Social Security tax and 1.45% Medicare tax from an employee’s FICA taxable wages. Employers must match the FICA taxes paid by their employees for a total FICA contribution of 15.3%.
Is Medicare the same as FICA?
No. FICA generates money for Medicare and Social Security programs through taxes imposed on nearly every employee and employer in the United States.
Is there an income limit on FICA taxes?
Social Security limits the amount of income subject to taxation. For 2025, that limit is $176,100. There is no cap for Medicare taxes.
Is FICA applicable to self-employed individuals?
The Self-Employment Contributions Act (SECA) tax applies to individuals who are self-employed and do not work for an employer. SECA requires self-employed people to cover both the employee and employer portion of the FICA tax.
Is FICA different from income tax?
Yes. FICA taxes are payroll taxes that fund Social Security and Medicare, while income taxes apply to an individual’s or business’s income. FICA taxes are withheld from employee wages, while income taxes are reported on an individual’s tax return.
Why do I have to pay FICA tax?
FICA is a mandatory tax that funds Social Security and Medicare. Paying FICA taxes earns you credits toward your Social Security coverage.
Is FICA tax deductible?
The employer portion of FICA is tax deductible. The employee portion is not.
Are FICA taxes mandatory?
Yes. Nearly every employer is required to withhold FICA taxes from employees’ wages.
Explore Paycom’s payroll tax software to learn how we alleviate the administrative burden of managing payroll taxes.
