What are FICA Taxes? Social Security and Medicare Taxes Explained

December 26, 2023

Federal taxes for Social Security and Medicare are mandatory, so understanding them is important for all HR professionals. Here’s what you need to know.

Reviewed by Paylocity's Compliance & Government Relations Team

What are FICA Taxes?

FICA is a U.S. federal payroll tax derived from the Federal Insurance Contributions Act (FICA) portion of the 1935 Social Security Act (SSA) that helps employees fund benefits for their future, post-retirement selves under the government's Social Security program.

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.

Key Takeaways

FICA was created in 1935 to help fund Social Security benefits and later expanded to include Medicare.
It consists of two payroll taxes (one for Social Security; one for Medicare) applied to every paycheck.
The funds collected from the taxes provide benefits for disability and life insurance.
FICA's retirement benefits are only available to individuals after the age of 62.

Who Pays FICA Taxes?

Similar to other payroll taxes, like income and unemployment, FICA taxes are mandatory for all employees and their employers. However, unlike those other taxes, employees and employers share the responsibility of paying FICA taxes every pay period. Each side contributes half of the overall amount sent to the federal government, though there are some exceptions.

FICA Exemptions

There are certain individuals who don’t have to pay FICA taxes on their wages. For example, students employed by their university or school while enrolled as a student there don’t pay FICA taxes on their income. According to the Internal Revenue Service (IRS) the other group of individuals who are exempt from FICA taxes are the following types of nonresident aliens:

Employees of a foreign government whose salaries are paid as a result of that official role.
Employees of an international organization whose salaries are paid as a result of that official role.
Crew members of a ship or aircraft if the vessel and employer are from a foreign country, or if the services performed on board are done outside the U.S.
Students, scholars, professors, teachers, etc. who perform services allowed by the United States Citizenship and Immigration Services (USCIS), such as on-campus employment as a teacher.
Nonimmigrants who perform temporary agricultural labor.
Residents of the Philippines who perform services in Guam.

Certain wages are also exempt from FICA taxes, regardless of the citizenship of the employee, including wages paid:

to a duly ordained, commissioned, or licensed minister of a church
to a child under the age of 18 by their parents
as part of a reimbursement for mileage
to student nurses

Self-Employed Workers

Workers who are self-employed or independent contractors still pay taxes for Social Security and Medicare, but under a separate piece of legislation called the Self-Employed Contributions Act (SECA). While this Self-Employment Tax uses the same rates for Social Security and Medicare as standard FICA taxes, the self-employed can’t share responsibility for paying these taxes since they work for themselves. They must pay the entirety of the Social Security and Medicare taxes on each paycheck.

How Do you Calculate FICA Taxes?

As mentioned above, employers and employees split the total amount owed in FICA taxes each pay period. The current FICA tax rate is 15.3% of an employee’s gross wages, but only half (7.65%) is paid by the employee, and the other half by the employer.

Social Security receives 6.20% of each half (or 12.4% of the total 15.3%), while the remaining 1.45% of each half (or 2.9% of the total 15.3%) goes to Medicare.

Tax	Paid by Employee	Paid by Employer	Total Tax Rate
Social Security	6.20%	6.20%	12.4%
Medicare	1.45%	1.45%	2.90%
FICA Taxes (total)	7.65%	7.65%	15.30%

For example, if an employee’s gross monthly wages are $2,000, then $306 is owed to the IRS (2,000 x 15.3%) under today’s FICA tax rates. Since FICA taxes are a shared responsibility, the employee pays half of that total ($153) while their employer pays the other half. Of that total amount, $248 (2000 x 12.4%) goes to Social Security and $58 (2000 x 2.9%) goes to Medicare.

Wage Base Limits

There is a limit, however, to FICA’s Social Security tax. The 2024 wage base limit states FICA’s tax rate for Social Security can only be applied to the first $168,600 of an employee’s annual wages, though this will increase to $176,100 in 2025.

This means if an employee earns $180,000 in 2025, FICA taxes will only be applied to the first $176,100 of those total wages. After that wage base limit is met, the remaining annual wages the employee earns that calendar year will not be subject to FICA’s Social Security tax.

Additional Taxes

There is currently no wage base limit for FICA’s Medicare tax, but there is an Additional Medicare Tax employees must pay if they earn over a certain amount. Employees who earn over $200,000 annually and file their tax returns as an individual owe an additional 0.9% in Medicare taxes on top of the 1.45% mentioned above.

Married employees who file jointly while earning over $250,000 annually or file separately while earning over $125,000 annually are also subject to this additional tax.

FICA FAQs

Are FICA taxes mandatory?

Yes, all employees must pay FICA taxes on their gross wages on every paycheck, including taxes for Social Security and Medicare.

Are there any FICA tax exemptions?

Yes, there are certain workers (like students and some nonresident aliens) and certain wages (like mileage reimbursements) that aren’t liable for FICA taxes.

What’s the current FICA tax rate?

In 2024, 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.

Are FICA taxes the same as income taxes?

No, FICA taxes are shared between an employee and employer, and go to specific government programs for Social Security and Medicare benefits. Income taxes are paid only by an employee, though they’re collected and paid to the IRS by employers on an employee’s behalf.

Are FICA taxes the same as Social Security taxes?

Partially, as FICA taxes include Social Security taxes and Medicare taxes.

Do you pay FICA taxes if you’re self-employed?

Yes, but it's called the Self-Employed Tax and is governed by SECA instead of FICA. The rates and calculations under SECA are the same as FICA, but self-employed workers must pay the entire amounts themselves as they don’t have an employer that shares tax responsibilities with them.

Get Taxes Done Right, Without the Stress

We know there's a lot that goes into preparing and filing payroll tax forms. Save time and get support from our expert team. As a Registered Reporting Agent with the IRS, we can help prepare and file all the necessary forms you need to remain compliant - even in the face of changing legislation. Learn more here.

Payroll Tax Services