What is the Federal Insurance Contributions Act (FICA)?
The Federal Insurance Contributions Act (FICA) is a U.S. law that mandates a payroll tax on the paychecks of employees, as well as contributions from employers, to fund the Social Security and Medicare programs. For self-employed persons, there is an equivalent law called the Self-Employed Contributions Act (SECA).
What Is FICA?
How Much You'll Contribute Due to FICA
FICA contributions are mandatory, with rates set annually—although not necessarily changed annually; they remained stable between 2018 and 2019, for example. The amount of the FICA payment depends on the income of the employee: the higher the income, the higher the FICA payment. However, for Social Security contributions, there's a maximum wage base, after which no contributions are levied on additional income. For 2019, the maximum wage base is $132,900. There is no wage base limit for Medicare.
The Social Security tax rate is 6.2%, and the Medicare tax rate is 1.45%. The employer pays a tax equal to the amounts withheld from employee earnings. While there is no maximum to the Medicare contribution, there is an additional 0.9% tax on wages over $200,000 for individuals ($250,000 for married couples filing jointly) paid by employees. Total, the Additional Medicare Tax is 2.35% (1.45% plus 0.9%). Employers are not required to match the additional Medicare levy.
Under SECA, self-employed people pay both the employee and employer portions of the tax. The amount that represents the employer's share (half) is a deductible business expense.
Practical Examples of FICA Calculations
Someone earning $50,000 will pay $3,825 of FICA contributions in 2019, broken down as $3,100 of Social Security tax and $725 of Medicare. The person's employer would pay the same amounts.
A single person earning $250,000, on the other hand, will pay $12,305. The calculation of this second example is slightly more complex. The person will pay 6.2% of the first $132,900 earned for Social Security ($8,230), then 1.45% of the first $200,000 earned for Medicare ($2,900) and finally 2.35% of the $50,000 in income above $200,000 for Medicare ($1,175). In this last case, the employer would pay only $11,130, as it is not responsible for the additional 0.9% tax for income of more than $200,000.
You can of course calculate contributions with a calculator, or turn to online tools such as this to do the work for you.