FICA, which stands for the Federal Insurance Contributions Act, is an official term for two taxes you’re (probably) already familiar with: Social Security and Medicare. These are taxes that both employers and employees always have to pay.
Here’s how FICA works: Before an employer pays an employee, they withhold FICA taxes from their employee’s paycheck. This is 7.65% of the gross pay for that pay period. Then, the employer also pays the same amount.
Example: If an employee has $50 withheld for FICA taxes, the employer needs to pay another $50 from their own pocket.
FICA tax: Cheat sheet
- FICA is the only payroll tax that’s the same for everyone. Income and unemployment are the two other types of payroll taxes, but those change depending on the person and business. With FICA, everyone pays 7.65%.
- Self-employed people have a similar tax. No, there’s no escaping the reach of Social Security and Medicare taxes if you’re self-employed. You’ll pay SECA taxes instead––there’s more information here.
- There’s an upper limit for Social Security taxes. The majority of FICA taxes are Social Security taxes, which are 6.2% of gross income. But Social Security taxes are capped at the federal wage base of $142,800 in 2021. If you make more than that, you’ll still pay Social Security taxes as if you were making $142,800.
How to calculate FICA taxes
You can calculate FICA taxes in less than a minute. Here’s how:
- Figure out an employee’s gross pay for any pay period. Let’s say it’s $3,500.
- Take 7.65% from that. In this case, it’s $267.75.
If you are an employee: That’s it. Now you know how much you’ll be paying in FICA taxes.
If you are an employer: You’ll have to withhold that amount from your employee’s paycheck and match their amount––so, $267.75––yourself for your own portion of the FICA tax.
You’re probably not exempt from FICA tax
In some way or another, everyone pays FICA taxes. Here are the details.
As an employer: If you hire freelancers (independent contractors), you won’t withhold FICA taxes, or other payroll taxes, from their paycheck.
As an employee: Remember, if you’re self-employed, you pay SECA taxes. The group of people who don’t have to pay FICA taxes at all is a very small one, the primary category being active students who are being paid by a university.
What FICA means on your paycheck
You might’ve come here just for this. And if you did, all FICA means on your paycheck is the portion of money that’s being withheld for Social Security and Medicare. Social Security makes up 6.2% and Medicare makes up 1.45% for a total of 7.65%.