FICA

What is FICA?

FICA (Federal Insurance Contributions Act) is a mandatory payroll tax that funds Social Security and Medicare programs. Employers and employees both contribute to FICA, which helps provide benefits for retirees, disabled individuals, and those with Medicare coverage.

What Does FICA Cover?

FICA consists of two main taxes:

• Social Security Tax: Provides retirement, disability, and survivor benefits.
• Medicare Tax: Funds healthcare for individuals aged 65 and older, as well as some younger individuals with disabilities.

FICA Tax Rates

As of the latest tax year, the FICA tax rates are:

• Social Security Tax: 6.2% for employees and 6.2% for employers (12.4% total), applied to wages up to the annual wage base limit.
• Medicare Tax: 1.45% for employees and 1.45% for employers (2.9% total), with no wage cap.

High earners are subject to an Additional Medicare Tax of 0.9% on wages exceeding $200,000 for single filers or $250,000 for married couples filing jointly. Employers do not match this additional tax.

Who Pays FICA Taxes?

FICA taxes are split between employees and employers:

• Employees: Have FICA taxes automatically deducted from their paychecks.
• Employers: Must match the employee’s FICA contributions and submit both portions to the IRS.
• Self-Employed Individuals: Pay the full 15.3% FICA tax (both employee and employer portions) as part of the Self-Employment Tax.

How to Calculate FICA Taxes?

Employers calculate FICA taxes based on an employee’s gross wages:

FICA Tax = (Gross Wages) × (Social Security Rate + Medicare Rate)

For example, if an employee earns $50,000 per year:

• Social Security Tax: $50,000 × 6.2% = $3,100
• Medicare Tax: $50,000 × 1.45% = $725

The employer must match these amounts, making the total FICA tax for the employee $7,650.

FICA Wage Base Limits

The Social Security tax has an annual wage cap, meaning earnings above this limit are not subject to the 6.2% tax. The Medicare tax, however, has no cap and applies to all wages.

How to Pay FICA Taxes?

Employers must deposit FICA taxes to the IRS through the Electronic Federal Tax Payment System (EFTPS). Payments are due based on payroll frequency, either semi-weekly or monthly.

Penalties for Non-Compliance

Failure to withhold, deposit, or report FICA taxes can result in:

• IRS Penalties: Fines and interest on unpaid taxes.
• Trust Fund Recovery Penalty (TFRP): A severe penalty for employers who fail to remit payroll taxes.
• Legal Action: The IRS may take enforcement measures for unpaid FICA taxes.

Key Takeaways

• FICA is a payroll tax that funds Social Security and Medicare benefits.
• Both employees and employers contribute to FICA at a combined rate of 15.3%.
• The Social Security tax has an annual wage cap, while Medicare applies to all wages.
• Self-employed individuals pay both employer and employee portions through the Self-Employment Tax.
• Employers must withhold, match, and submit FICA taxes on time to avoid IRS penalties.

For more details, visit the IRS website on FICA taxes.