Federal Insurance Contributions Act (FICA): 2024 Guide

Have you ever wondered what ‘FICA tax’ stands for in your pay stub? FICA is among the mandatory contributions withheld from your regular pay by your employer.

Even self-employed individuals are required to allocate a specific percentage of their earnings for FICA regularly. As a taxpayer, it is your right and responsibility to know the purpose of the taxes you pay.

Keep reading to learn everything about FICA tax, why it is collected, how it is calculated, and what happens if you overpay it!

Key Takeaways

• FICA (Federal Insurance Contributions Act) is a federal payroll tax that funds the government’s Social Security and Medicare programs.
• All individuals whose job covers social security and self-employed individuals are required to pay their share of FICA taxes.
• Employers and employees split the standard FICA tax rates and pay 6.2% for Social Security and 1.45% for Medicare.
• Self-employed individuals cover the entire 12.4% for Social Security and 2.9% for Medicare.
• FICA tax rates are calculated by multiplying the Social Security and Medicare rates by your average salary or wage.

What is FICA Tax?

FICA stands for “Federal Insurance Contributions Act,” a US federal payroll tax levied on employee paychecks. The tax contributions for FICA are used to fund the federal government’s Social Security and Medicare programs.

In 1935, the United States Congress passed the Federal Insurance Contributions Act (FICA) as a means to allocate funds for the newly established Social Insurance, now called the “Social Security Program.” At that time, former US president Franklin D. Roosevelt founded the then-Social Insurance to tackle economic security issues for the elderly.

The Self-Employment Contributions Act (SECA) of 1954 was also passed into law and levies taxes on the income of taxpayers who work for themselves. Then, in 1965, former president Lyndon B. Johnson signed Medicare into law, which then led to the inclusion of payroll tax for health care benefits in the FICA tax.

Tax withholdings for FICA taxes are mandatory. The contributions are shared between employees and their employers, while self-employed individuals shoulder the entire percentage of their taxable earnings.

A common misconception about contributions for FICA taxes is that they go directly to the taxpayers’ respective Social Security and Medicare funds. In truth, these contributions help fund retirees’ federal health insurance and social security.

If you are paying FICA taxes now, then your Social Security and Medicare will be funded by the succeeding generation of taxpayers.

How do FICA Taxes Work?

The tax rates for FICA in 2022 and 2023 are the same, at 12.4% for Social Security and 2.9% for Medicare. Since employers split the FICA tax payments with their staff, they each contribute 6.2% for Social Security and 1.45% each for Medicare taxes.

Wage base limits are imposed on Social Security but not on Medicare. The limits are the maximum taxable income or wage amount for Old-Age, Survivors, and Disability Income (OASDI) trust funds under Social Security.

Last year, the wage base limit was $160,200, but due to adjustments caused by current inflation, the said limit was raised to $168,600 for the 2024 tax year.

As for the Medicare payroll tax, once employees’ wages exceed the threshold of $125,000 for married filing separately, $200,000 for single filers, heads of household, and qualifying widow(er)s and $250,000 for married filing jointly, they are then required to pay an additional 0.9% on Medicare tax on top of the percentage that they share with their employer.

Employers are not obligated to match the additional Medicare tax percentage paid by their employees.

Meanwhile, self-employed taxpayers shoulder the entire percentage of contributions for FICA taxes. They are, however, eligible for a tax break by deducting a maximum of 50% of the amount that the employer typically covers as a business expense.

How to Calculate FICA Tax?

The key to accurately calculating your FICA tax percentage depends on whether you are self-employed or work for an employer.

If you are self-employed, you pay a 15.3% FICA rate, which is a combination of the full 12.4% for Social Security and 2.9% for Medicare.

As a self-employed taxpayer, you can deduct 7.65%, or half of the 15.3% tax rate, to reduce your income tax. This option applies regardless of whether you claim the IRS’ standard deductions or itemize your deductions instead.

What if you are employed by a company or employer?

Let’s say you work as an HR Generalist and earn an average annual salary of $64,000. In such a case, you could:

1. Divide your annual rate by the number of pay periods per pay cycle.
2. Multiply your taxable salary or wage by your combined Medicare and Social Security tax rates. Employees are subject to a fixed Social Security rate of 6.2% and a Medicare rate of 1.45%.

The table below shows how much you owe for Social Security and Medicare taxes if you are paid weekly, bi-weekly, semi-monthly, or monthly:

Who Pays FICA Tax?

The FICA tax is paid by employers, their employees, and even by self-employed taxpayers. The bottom line is: as long as an individual earns a significant amount of income or wage, they are required to give a portion of their earnings to help fund FICA.

Employees’ FICA tax contributions are automatically deducted from their regular paychecks.

But is there anyone who is exempt from paying FICA tax? Yes, the following are exempt from fulfilling FICA tax obligations:

• Employees of foreign government offices
• Members of specific religious organizations
• Working students (working at the same school where they are currently enrolled and working a minimum of 20 hours each week or 40 hours minimum during summer vacation)

Citizenship-wise, the following individuals are also not subject to FICA taxes:

• Nonresident aliens
• International students
• Aliens temporarily present in the US
• Aliens that have not passed any substantial presence test that will make them resident aliens duty-bound to fulfill tax responsibilities in the US
• Individuals in F-1, M-1, Q-1, or Q-2 non-immigrant status whose work involves services that are allowed by the US Citizenship & Immigration Services (USCIS)
• J-1 scholars or students under a particular educational exchange program, or students enrolled in degree programs

Overpaying FICA Tax

When your FICA taxes are overpaid, you are entitled to have these excess payments refunded. Overpayment usually occurs when there has been a miscalculation in your FICA taxes.

If you have two different employers and your combined salary exceeds the wage base, you may have overpaid FICA taxes, especially if both employers withhold contributions from your wages.

At the same time, both employers may be withholding income for your share of FICA taxes.

Another possible reason you end up overpaying your FICA tax is that you may have mistakenly withheld income for FICA even when you are not required to pay for the said tax.

To claim a refund on your Social Security and Medicare contributions from the IRS, all you have to do is fill out Form 843 and include either a letter from your employer that details the amount to be refunded or a letter certifying how your employer was unable to repay your excess FICA withholdings.

If you want to avoid errors in calculating your FICA tax rates, try using a FICA tax calculator or check out the IRS Tax Withholding Estimator.

Final Thoughts

Your Medicare and Social Security contributions will highly benefit retirees, persons with disabilities, and people with underlying health conditions who require immediate care. Eventually, you or someone you know will also benefit from the withholdings used to pay FICA taxes.

FICA Tax FAQ

#1. Do I have to pay FICA?

Yes, unless you belong to any of the categories for FICA tax exemption. Whether you work for a company that offers Social Security coverage or you earn income while self-employed, you are required to withhold a percentage of your salary to pay your FICA taxes.

#2. Is FICA the same as federal income tax?

While both FICA and federal income taxes are mandatorily withheld from employee wages, they are not one and the same. In fact, FICA tax rates are calculated separately from federal income tax rates.

#3. Is FICA the same as social security?

FICA is not the same as social security. The Federal Insurance Contributions Act was established to help fund both the federal government’s social security and Medicare programs. These programs are created to provide financial assistance to children, retirees, and individuals with disabilities and underlying health conditions.

#4. What is the FICA tax rate?

The standard FICA tax rate for 2023 is 6.2% for Social Security and 1.45% for Medicare. An additional 0.9% Medicare tax rate is levied on individuals earning over $200,000 annually.