In 2025, a total of 15.3% of an employee’s wages should go to FICA taxes, with 12.4% specifically for Social Security and the remaining 2.9% going to Medicare. Today, FICA taxes include a Medicare tax along with the original Social Security tax (also known as Old Age, Survivors, and Disability Insurance or OASDI). Employees who pay these taxes build eligibility for retirement benefits useable after turning 62, as well as disability and life insurance benefits.
How FICA taxes are used
Your take home pay will still feel it, depending on your income fica-med meaning level. Unfortunately, your employer keeps a lot of the process invisible. If you’re traditionally employed in the United States, you’ve likely glanced at the line-by-line breakdown on your paystub before. You’ve probably noticed a deduction called FICA Med or FICA Social Security.
Do I Have to Pay FICA?
Employers should withhold the employees’ share of these taxes and also pay the employer’s part. These taxes are directed first to the Internal Revenue Service and later given to the Social Security Administration for retirement and disability payments. Furthermore, the Medicare tax funds the federal government’s Medicare trust, for clinical costs for people 65 years old or more, or for the individuals who fit the bill for disability. FICA taxes are paid on all earned income (up to the $142,800 wage base).
FICA obligates employees and employers to contribute to the government programs
The Social Security tax rate is 6.2%, and the Medicare tax rate is 1.45% for 2020 and 2021. The employer pays a tax equivalent to the sums retained from employee earnings. While there is no maximum to the Medicare contribution, there is an extra 0.9% tax on wages more than $200,000 for people ($250,000 for wedded couples filing together) paid by employees. Altogether, the Additional Medicare Tax is 2.35% (1.45% in addition to 0.9%). Employers are not needed to coordinate with the extra Medicare levy.
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. Fortunately, excess FICA tax could be refunded when you file for your taxes.
- This article was expert reviewed by Lisa Niser, EA, an enrolled agent and tax advisor.
- The Social Security and Medicare taxes are the same rates — 6.2% and 1.45%, respectively.
- The employer makes tax deposits as money is withheld from your earnings based on information you provide in an IRS Form W-4 about your filing status, dependents and any side income you may have.
- However, self-employed people are responsible for the full amount at 15.3%.
- According to Ben Dobler, a licensed financial planner and originator of Stewardship Financial Counsel in Cincinnati, “FICA taxes are the primary funding source for Social Security benefits”.
Medicare tax
- Enterprises and larger employers can expect to pay more FUTA taxes, though their rate per worker won’t change.
- Your FICA taxes are deducted from your paychecks, and your employer pays a matching amount.
- Medicare taxes have no wage base limits, so you’ll always have Medicare taxes deducted.
Its purpose was to collect contributions to fund the new Social Security program established by the administration of President Franklin D. Roosevelt in the same year. Here is what you need to know about FICA taxes and how they affect your paycheck. Cora is a Northwest-based writer and editor who wants to make information as accessible as possible in the internet age.
Who Pays FICA Taxes?
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. The current FUTA tax rate is 6% of the first $7,000 a business pays to an employee each year.
At the end of the day, the employer coordinates with the FICA tax share that the employees have withheld from their checks. State and local government employees in certain states who are entitled to a pension may only be required to pay the Medicare portion of FICA taxes. If you are a religious employee, your company could opt to claim an exemption from the FICA tax. Employees who are exempt from FICA will not have to pay Social Security or Medicare tax. However, they will not receive the benefits of the FICA system, either. A few students, particularly those working as Research Assistants or Teaching Assistants will not need to pay FICA on their payments.
If you’re self-employed you’re required to pay Social Security and Medicare taxes on your net earnings—your gross income minus deductions. But instead of paying FICA taxes, you’re required to pay “SECA” taxes under the Self-Employed Contributions Act. FICA stands for the Federal Income Contributions Act, which is the name for the U.S. payroll tax deduction used to fund Social Security and Medicare. Those familiar government programs provide financial and health care benefits for tens of millions of retirees, disabled Americans and children. First, they automatically deduct FICA tax from your paycheck.
This brings the total tax rate to 15.3% for self-employed workers. When states lack funds for unemployment benefits, they can take Federal Unemployment Trust Fund loans. Now that we have answered the question “What is FICA on my paystub?” and understood all its components, it is essential to keep in mind the benefits of paying such taxes. As for calculating the FICA deduction on paystub with the correct rate, Real Check Stubs has you covered.
FICA taxes affect your take-home pay, along with income taxes, by being deducted from your gross pay, lowering your take-home pay. You can use the Social Security Administration’s calculator to estimate your benefits. Part D helps cover the cost of prescription drugs, and Part D plans are available through Medicare-approved private insurers. Medicare beneficiaries who want prescription drug coverage must enroll in a Part D plan and pay an additional monthly premium. Medicare Advantage plans must provide at least the same coverage as original Medicare Parts A and B, and some programs offer additional benefits like dental, vision, or hearing care.
Notwithstanding Social Security, FICA taxes are piped into the Medicare program. Higher-income taxpayers are required to pay higher Medicare taxes. In 2013, an additional Medicare tax was implemented, imposing an extra 0.9% of taxes on earnings over $200,000. Your Social Security and Medicare taxes add up to 7.65% of the money you make. Your employer will match that amount—and provide the government with total FICA taxes representing 15.3% of your earnings.
However, the taxes are levied on your net earnings instead of gross pay and you’ll pay both the employee and employer portions. On your annual tax return, you can get a deduction for one-half of the taxes paid. Wage earners pay 6.2% on income up to $168,600 in 2024 toward Social Security. Any income above that threshold is not taxed for Social Security purposes. The Medicare rate of 1.45% is paid by wage earners on all their income.
The FICA taxes consist of a 6.2% Social Security tax, 1.45% Medicare tax, and potentially a 0.9% Medicare surtax, depending on your income. Get familiar with the basics of FICA withholding, including how much you can expect to pay in FICA taxes. For 2023 and 2024, the total Social Security tax rate of 12.4% is split between employee and employer. The employee pays 6.2% and the employer pays the other 6.2%. FICA taxes are compulsory business taxes that should be both withheld and paid in the interest of every employee.
For self-employed persons, there is a similar law called the Self-Employed Contributions Act (SECA). Social Security limits the amount of income subject to taxation. 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.