Employees at U.S. businesses are required to pay what are known as FICA taxes, often referred to as payroll taxes. Your FICA taxes impact your final net pay and are determined by the amount of your earnings.
Here is what you need to know about FICA taxes and how they affect your paycheck.
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What Is FICA Tax?
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.
FICA taxes collected today help fund benefits for current retirees and other beneficiaries, and any unused money goes into the Social Security trust fund to help pay future benefits.
Who Pays FICA Taxes?
The responsibility of paying FICA taxes is shared by workers and the people they work for.
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.
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.
What Are the FICA Tax Rates and Limits?
FICA taxes consist of two parts: Medicare and Social Security taxes. Your employer will withhold both taxes from your earnings.
For 2022, you pay Social Security taxes on any earnings up to $147,000; your employer will withhold 6.2% of each paycheck to cover your obligation.
Your employer also will withhold 1.45% of your earnings for Medicare. Unlike Social Security taxes, your Medicare taxes don’t have a wage limit. If you earn more than $147,000, you’ll pay Medicare taxes on the full amount.
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.
Keep in mind that if you’re self-employed, you’re both employer and employee—so you’re responsible to pay the full 15.3% for Medicare and Social Security taxes. However, the law allows you to take a deduction for 50% of the amount on your tax return. The best tax software for the self-employed can help you navigate these issues.
Some Must Pay Additional Medicare Tax
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 employer will begin withholding the tax during the first pay period in which your wages exceed the $200,000 threshold, and will continue withholding the tax throughout the calendar year.
There is no employer match for the additional Medicare tax.
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How to Calculate FICA Tax
You can calculate your FICA taxes by multiplying your gross wages by the current Social Security and Medicare tax rates.
Let’s say your wages for 2022 are $135,000. Here’s how to determine your FICA taxes.
- First, multiply $135,000 by 6.2% (.062) to get your Social Security taxes: $8,370.
- Then, multiply $135,000 by 1.45% (0.0145) to get your Medicare taxes: $1,957.50.
- Finally, add $8,370 and $1,957.50 to get your total FICA taxes: $10,327.50.
If you earn more than $147,000 for 2022, your FICA taxes are computed slightly differently.
For example, let’s say you earn $150,000 for 2022. Your FICA taxes would be $11,289:
- Social Security taxes: $147,000 x 6.2% (0.062) = $9,114.
- Medicare taxes: $150,000 x 1.45% (0.0145) = $2,175.
- $9,114 + $2,175 = $11,289.
Remember, you’re required to pay Social Security taxes only on earnings up to $147,000.
What if you earn enough to trigger the additional Medicare tax? Let’s say you make $250,000 in 2022. Your employer would withhold the additional 0.9% tax from your earnings over the $200,000 threshold—in this case, $50,000—and you’d pay FICA taxes totaling $13,189:
- Social Security taxes: $147,000 x 6.2% (0.062) = $9,114.
- Medicare taxes: $250,000 x 1.45% (0.0145) = $3,625.
- Additional Medicare tax: $50,000 x 0.9% (0.009) = $450.
- $9,114 + $3,625 + $450 = $13,189.
In addition to your Social Security and Medicare taxes, your employer may also withhold federal income taxes. This amount is based on your filing status and any additional withholding amounts you requested on your Form W-4.
