What is the FICA Tax and How Does It Work?

Both you and your employer will each pay the 1.45 percent Medicare tax on all of your qualifying wage income. If you are subject to the 0.9 percent additional Medicare tax, you only have to pay the employee part since there is no employer part. This can add up to a large expense when you consider the number of employees a business has.

  • This would occur because revenues received into the program will not be enough to cover payments from it.
  • Self-employed persons pay both halves of both taxes for a total of 15.3% of their net business earnings.
  • Employers must withhold the additional Medicare tax from wages of employees earning more than $200,000 in a calendar year.
  • However, earners who reach a specific income threshold (based on filing status) should also be aware of the Additional Medicare tax.
  • Any income above that threshold is not taxed for Social Security purposes.

Unlike employees, the employer does not have to match the 0.9 percent additional Medicare tax for high earning employees. The money withheld from your paycheck is used as a funding source for Social Security and Medicare programs. Short for the Federal Insurance Contributions Act, this 15.3% tax (for most workers) is paid half by you, and half by your employer. Started during the Great Depression, the FICA tax is used to fund key parts of the government’s social safety net, namely Social Security and Medicare. That means you’ll shell out a total of $7,650 (7.65% of your taxable income) for FICA taxes. Instead, those taxes contribute to everyone currently receiving Social Security benefits.


The upshot is that, while no one likes taxes, with FICA you can count on the government paying back your contributions in the form of retirement and healthcare benefits. We’ve gone over the FICA tax rates and base wage limits, so let’s look at a few examples of how to calculate FICA taxes. Nobody likes having money withheld from their paycheck, especially for something as yucky as taxes. But if you’re an American and an employee (or an employer), chances are you’re one of the lucky millions required to pay into FICA. Higher-income taxpayers are required to pay higher Medicare taxes.

  • Even if you aren’t self-employed, consulting a tax professional may be able to help save you money in other ways, too.
  • With TurboTax Live Full Service, a local expert matched to your unique situation will do your taxes for you start to finish.
  • If you have multiple jobs, you can claim the Social Security overpayment on Form 1040.
  • The IRS announced the higher limits for the federal income tax bracket and standard deductions in November.

Remember, you’re required to pay Social Security taxes only on earnings up to $147,000. The responsibility of paying FICA taxes is shared by workers and the people they work for. Medicare taxes, on the other hand, don’t have a wage limit. But there’s an Additional Medicare Tax that high-income individuals must pay.

What is net pay? How it works, how to calculate it and its difference from gross pay

This could happen if you switch jobs more than once and all of your earnings are taxed, even if your combined income exceeds the Social Security wage base limit. Fortunately, you may be able to get a refund when you file your taxes. Paying FICA taxes is mandatory for most employees and employers under the Federal Insurance Contributions Act. The funds are used to pay for both Social Security and Medicare. If you own a business, you’re responsible for paying Social Security and Medicare taxes, too. Self-employed workers are referred to as SECA taxes (or self-employment taxes) based on regulations included in the Self-Employed Contributions Act.

How to Calculate FICA

No matter which way you file, we guarantee 100% accuracy and your maximum refund. Use our W-4 Calculator to help you determine how to boost your refund or your take home pay. You can fill out an updated form and submit it to your employer at any time. However, self-employed individuals can deduct half of their self-employment tax on their tax returns. This helps offset the FICA tax burden on business owners and other independent workers.

Remember, these taxes are not used to pay for your future benefits. Instead, those payroll taxes you’re paying are collected by the IRS and sent out to folks who are currently receiving Social Security benefits (aka beneficiaries). Your FICA taxes are deducted from your paychecks, and your employer pays a matching amount. 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. Some employees pay more Social Security taxes than they need to.

Partner Spotlight Keeper Tax

You can also find an annual record of your FICA contributions on your W-2 form, which your employer provides. This form summarizes your yearly earnings, so you can check the amount you earned and the FICA taxes withheld all in one place. As such, bonus tax withholding “will look like a big number” for any taxpayer whose federal marginal income tax rate is less than 22%, said Jeremiah Barlow, head of wealth solutions at Mercer Advisors. Keeping track of your employee’s net pay and gross pay is also important for tracking payroll taxes. If there are any inconsistencies between the two, you may want to verify the information. If there are any issues, this could result in penalties.

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%. Whether you work for an https://cryptolisting.org/blog/what-is-process-costing employer or are self-employed, you’re required to give the government a share of your earnings. In the U.S., employers withhold taxes from each paycheck for Social Security and Medicare.

When glancing at a pay stub, one might notice deductions labeled as FICA taxes. These deductions, while universally applicable to U.S. workers, often remain misunderstood. Let’s delve into the intricacies of FICA taxes to ensure clarity. It’s the 2023 holiday season, and for fortunate employees, that means an end-of-year bonus! Yet many employees are disappointed when their bonus lands in their bank – usually a lower amount than anticipated.







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