Definition · Compensation and benefits
FICA
Definition
FICA is the US payroll tax that funds Social Security and Medicare, under the Federal Insurance Contributions Act. Employees pay 6.2% Social Security tax up to an annual wage base and 1.45% Medicare tax on all wages; employers pay a matching 7.65%. High earners also owe a 0.9% Additional Medicare Tax that employers withhold but do not match.
Also called: FICA tax, Federal Insurance Contributions Act, Social Security and Medicare tax, Payroll tax
Formula
Employee FICA = (Social Security wages up to the wage base × 6.2%) + (Medicare wages × 1.45%) + (Medicare wages over $200,000 in the year × 0.9%)
- Social Security wages
- Gross wages minus Section 125 and similar FICA-exempt deductions, capped at the annual wage base ($184,500 for 2026; it is adjusted every year).
- Medicare wages
- The same wages with no cap.
- Employer FICA
- 6.2% on Social Security wages up to the base plus 1.45% on all Medicare wages. No employer match on the 0.9% Additional Medicare Tax.
Worked example
Jordan, a team lead, earns $1,900 biweekly and pays $100 in Section 125 medical premiums. FICA wages = $1,800. Employee FICA = 1,800 × 7.65% = $137.70, and the employer pays another $137.70. Over 26 pay periods the employer's FICA cost for Jordan is $3,580.20.
How FICA works
FICA has two parts. Social Security (old-age, survivors and disability insurance) is 6.2% from the employee and 6.2% from the employer, on wages up to the Social Security wage base. Once an employee's wages for the year pass the base, Social Security withholding stops until January. Medicare (hospital insurance) is 1.45% from each side with no wage cap.
On top of that, the Additional Medicare Tax is 0.9% on an employee's wages above $200,000 in a calendar year. The employer must start withholding it in the pay period wages cross $200,000, regardless of filing status, and there is no employer match. Employees settle any difference on their personal tax return.
Self-employed people pay both halves through self-employment tax (SECA), 15.3% in total on net earnings up to the base. That is one reason independent contractors cost less on paper, and one reason misclassification draws IRS attention.
Employer FICA: the cost on top of pay
Employer FICA is part of the real cost of every hire. For most employees it adds 7.65% to wages. A contact center paying $30 million a year in agent wages pays about $2.3 million in employer FICA. When finance models a pay increase, a shift differential or a sign-on bonus, the cost is the amount plus 7.65% (and usually unemployment taxes and benefit costs on top).
Employers report FICA and income tax withholding quarterly on Form 941 and deposit taxes on a monthly or semiweekly schedule depending on the size of their liability. Annual totals go on each employee's Form W-2 in Boxes 3 through 6.
What counts as FICA wages
Most compensation is subject to FICA: wages, salaries, overtime, bonuses, commissions, reported tips, paid time off and most taxable fringe benefits. The important exclusions are Section 125 cafeteria plan deductions (health premiums, FSA and HSA contributions through the plan) and certain other qualified benefits. Traditional 401(k) deferrals reduce income-taxable wages but not FICA wages; payroll systems set up incorrectly here cause underpayments that surface in an audit. For how these fit together on a paystub, see payroll deductions.
Common FICA mistakes
- Coding 401(k) deferrals as FICA-exempt.
- Not restarting Social Security withholding in January for high earners who hit the base the previous year.
- Missing the Additional Medicare Tax on a large bonus that pushes someone over $200,000.
- Not withholding on taxable fringe benefits, such as personal use of a company car or non-accountable allowances.
- Overwithholding for employees who change employers within a related group. Each unrelated employer withholds up to the base separately, and the employee claims a credit for excess. Related employers using a common paymaster may be able to avoid the duplication.
Withheld FICA and income tax are trust fund taxes. If a business does not deposit them, the IRS can assess the Trust Fund Recovery Penalty personally against responsible individuals, which can include payroll and finance leaders.
FICA vs FUTA and SUTA
FICA funds Social Security and Medicare and is split between employer and employee. FUTA and state unemployment taxes fund unemployment insurance and, in nearly every state, are paid by the employer only. All three apply to most employees, but they have different wage bases, rates and filing forms (Form 941 for FICA, Form 940 for FUTA, state returns for SUTA).
Frequently asked questions
What does FICA mean on my paycheck?
FICA is the Social Security and Medicare tax withheld under the Federal Insurance Contributions Act. Your paystub may show it as one line or as separate Social Security (OASDI) and Medicare lines.
What is the FICA tax rate?
7.65% for employees: 6.2% Social Security on wages up to the annual wage base plus 1.45% Medicare on all wages. Employees earning over $200,000 pay an extra 0.9% Medicare on wages above that amount.
Do employers pay FICA?
Yes. Employers match the employee's 6.2% Social Security and 1.45% Medicare, for a total employer FICA cost of 7.65% on most wages. Employers do not match the Additional Medicare Tax.
Is FICA the same as federal income tax?
No. Federal income tax withholding depends on the employee's W-4 and taxable income. FICA is a flat-rate payroll tax for Social Security and Medicare.
Are bonuses subject to FICA?
Yes. Bonuses, commissions and most other cash compensation are FICA wages, subject to the same rates and the Social Security wage base.
Do 401(k) contributions reduce FICA?
Traditional 401(k) deferrals do not reduce FICA wages; they only reduce income-taxable wages. Section 125 health premiums do reduce FICA wages.