FICA Tax Explained: What It Is, How It Works & Current Rates

FICA tax is part of every payroll cycle, but many people are unsure how these withholdings are calculated or why the amounts change from year to year. The funds support Social Security and Medicare, so accuracy matters for every employer and worker who depends on those benefits. When a business miscalculates payroll taxes, it can create issues during IRS reviews, and even lead to an IRS penalty, which is why understanding FICA is an important part of staying compliant. This blog explains how FICA works, the current rates for 2025, and how contributions are calculated so employers and employees can manage payroll with confidence.

What Is FICA Tax?

The FICA tax is a mandatory federal payroll tax that supports Social Security and Medicare benefits for eligible workers, retirees, and certain dependents. It is withheld from employee wages and paired with an equal employer contribution, which makes it different from income tax that workers pay on their own. These funds help provide ongoing support to current beneficiaries, so accurate FICA tax withholding is required for most wages paid in the United States. Employers must collect the tax from each paycheck and deposit both portions to the government, and failure to do so can result in an IRS penalty for incorrect or incomplete reporting. Understanding what FICA tax is establishes a clear foundation for payroll compliance.

How FICA Tax Works

The FICA tax is collected each pay period through automatic FICA tax withholding from taxable wages, and those amounts are remitted on the IRS-required deposit schedule via electronic funds transfer. Employers track Social Security and Medicare as a distinct FICA payroll tax category, separate from federal income tax, and report them on periodic employment tax returns. Employees can verify what was withheld because FICA amounts appear on Form W‑2 as Social Security tax withheld (Box 4) and Medicare tax withheld (Box 6), reflecting the payroll deductions taken during the year. These withholdings are treated as trust taxes, so accurate, timely deposits and proper reporting are required under federal rules.

Employee and Employer FICA Contributions

FICA uses a shared-cost model. The employee’s portion is taken as a FICA deduction from wages each pay cycle, and the employer contributes an equal share on those same wages; the employer then remits both parts and reports them to the IRS.

• Who pays what: The FICA employee tax is withheld from each paycheck, while the employer matches it at the applicable employer FICA rate and combines both amounts for deposit.
• How it’s remitted: Employers are responsible for withholding correctly, matching the employee portion, depositing electronically on the assigned schedule, and filing required payroll forms.
• When net pay changes: FICA liability is determined from taxable wages, so withholding generally continues even when net pay is reduced by pre‑tax deductions or wage garnishments, unless a specific federal exemption applies.
• Why accuracy matters: These are trust-fund amounts; failures in withholding, matching, or depositing can trigger an IRS penalty and other compliance issues.

FICA Tax Rates for 2025

The FICA tax is split between Social Security and Medicare. For 2025, the base FICA tax rate percentages are unchanged, and the Social Security wage cap has been updated. Staying aligned with these FICA tax limits keeps payroll accurate and compliant.

Social Security Tax Rate

• Employee: 6.2%
• Employer: 6.2%
• Wage base cap: $176,100 for 2025. Only wages up to this cap are subject to the Social Security portion of the FICA payroll tax. The maximum employee Social Security withholding at this cap is $10,918.20 (6.2% × $176,100).

Medicare Tax Rate

• Employee: 1.45%
• Employer: 1.45%
• No wage cap: All covered wages are subject to the base Medicare portion of the FICA tax.

Additional Medicare Tax for High Earners

• Employee-only surtax: 0.9% on Medicare wages above the threshold. There is no employer match.
• Employer withholding rule: Begin withholding 0.9% in the pay period when year‑to‑date Medicare wages exceed $200,000, regardless of filing status; there is no employer match.
• Thresholds by filing status (employee liability): $250,000 for married filing jointly, $125,000 for married filing separately, and $200,000 for all other filers.

How to Calculate FICA Taxes

Employers calculate the FICA tax by determining how much of each employee’s wages are subject to Social Security and Medicare, applying the correct percentages, and then combining the two results. The employee share is withheld from wages, and the employer generally matches that amount.

Social Security Portion

To calculate the Social Security share:

• Identify the employee’s taxable wages for the pay period.
• Confirm year-to-date wages against the annual Social Security wage base of $176,100 for 2025.
• Apply 6.2% on taxable wages up to the remaining wage-base limit.
• Stop Social Security withholding on wages paid after the employee reaches $176,100 for the year, continue Medicare withholding on all additional wages.
• Employers match the employee’s Social Security withholding at the same 6.2% rate.

This portion is reported on payroll tax filings and later appears on Form W-2 in the Social Security withholding box.

Medicare Portion

To calculate the Medicare share:

• Apply 1.45% to all covered wages; Medicare has no annual wage cap.
• Monitor year-to-date Medicare wages for the $200,000 threshold.
• When year-to-date wages exceed $200,000, withhold an extra 0.9% on the excess for the employee only.
• Employers do not match the Additional Medicare Tax; they only match the base 1.45%.

The employee’s Medicare withholding appears on Form W-2 in the Medicare tax box.

Total FICA Tax Calculation

To determine the total FICA deduction for a pay period:

• Add the Social Security withholding (6.2% up to the wage base) and Medicare withholding (1.45% on all wages).
• For employees below the Social Security wage base and below $200,000 in Medicare wages, the total employee rate is 7.65%.
• Employers match the same 7.65%, bringing the combined cost to 15.3%.
• When wages exceed $176,100 or $200,000, payroll systems adjust automatically based on IRS rules.

Accurate calculation prevents reporting mistakes and reduces the risk of an IRS penalty for incorrect deposits or filings.

FICA Tax Exemptions

Certain wages and worker classifications are not subject to the FICA tax, and employers must identify these situations correctly when processing payroll. Exemptions are limited, and each is defined under federal rules rather than employer preference.

Students and Certain Nonresident Aliens

• Students who work for the same school where they are enrolled and regularly attending classes may qualify for a FICA exemption. The exemption applies only when the employment is closely connected to student status, not simply because the worker happens to be enrolled somewhere.
• Specific groups of nonresident aliens may also be exempt when working in the U.S. under qualifying visa categories. In many cases, these exemptions apply to students, scholars, teachers, and researchers who are temporarily present on certain visa types and performing authorized services.

Exempt Wages and Special Employment Situations

• Certain types of wages are excluded from the FICA payroll tax, including some employer-provided benefits and specific post-death payments.
• Some roles within government, nonprofits, and international organizations may fall under different Social Security and Medicare coverage rules.
• Election workers earning below the IRS threshold and certain foreign government employees working in the U.S. can also fall outside FICA requirements, depending on how the job is classified under federal law.

Get Professional Help Filing Your FICA and Payroll Taxes with the Law Offices of Nemeth & Flores

Accurate handling of FICA tax withholding and payroll reporting is essential for compliance with federal requirements. At the Law Offices of Nemeth & Flores, our experienced IRS tax attorney provides tailored support for businesses navigating payroll complexities, including multiple employees, changing wage structures, and situations involving exempt wages or nonresident workers. Expert guidance can help ensure proper filings, prevent costly payroll errors, and assist with resolving past payroll issues or notices from the IRS. For personalized support, call (972) 426-2944, or submit your information through the contact form to schedule a consultation.

Frequently Asked Questions 

Do employers have to match FICA rates?

Yes. Employers generally match the employee share of the FICA tax: 6.2% for Social Security and 1.45% for Medicare, calculated on the same taxable wages.

Which taxes are included in FICA?

FICA covers two payroll taxes withheld from wages: Social Security and Medicare.

Is Social Security the same as FICA?

No. Social Security is one component of FICA; the other component is Medicare.

What is the difference between FICA tax and federal income tax?

The FICA tax funds Social Security and Medicare and is based on wages, while federal income tax is based on total taxable income, filing status, and adjustments. They are withheld and reported separately (e.g., on Form W-2).

Is Medicare the same as FICA?

No. Medicare is one part of the FICA payroll tax; Social Security is the other.

Is FICA applicable to self-employed individuals?

Yes. Self-employed workers pay self-employment tax, which equals both sides of FICA in one combined rate of 15.3% (12.4% Social Security + 2.9% Medicare).

Is there an income limit on FICA taxes?

Yes for Social Security; no for base Medicare. The Social Security wage base for 2025 is $176,100. Medicare has no wage cap, and an additional 0.9% employee-only Medicare tax applies when year-to-date Medicare wages exceed $200,000 (employer must begin withholding at that threshold).

Are FICA taxes mandatory?

Yes for most wage earners. Limited exemptions exist under federal rules (for example, certain student employees and eligible nonresident aliens in specific visa categories).

Why do I have to pay FICA tax?

Withholding under the FICA tax funds Social Security and Medicare, which provide retirement, disability, survivor benefits, and hospital insurance for eligible individuals.

Can a tax attorney help resolve FICA or payroll tax issues?

An experienced IRS tax attorney can assist with payroll tax notices, payment disputes, classification issues, and corrections to past filings. For professional support in the Dallas–Fort Worth area, the Law Offices of Nemeth & Flores offers consultations to help employers address payroll compliance concerns.

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