The Federal Insurance Contributions Act (FICA) is a U.S. law that imposes a payroll tax on employee compensation. The tax comprises an employee and employer portion.
The payroll taxes are used to fund the Social Security and Medicare programs. These programs provide benefits for retirees and disabled individuals, as well as healthcare benefits for seniors and certain individuals with disabilities.
What Are the Key Components of FICA
Old-Age, Survivors, and Disability Insurance (Social Security Tax)
The Social Security tax on wages consists of an employee and employer portion. The employee contribution is 6.2% of wages up to the annual base limit ($160,200 for 2023, and $168,600 for 2024). This amount is deducted from the employee’s paycheck and reported on the Form W-2 (Wage and Tax Statement). The employer match is also 6.2% of wages up to the annual base limit. The combined social security tax is 12.4% on wages.
Medicare Tax
The Medicare tax consists of an employee and employer portion. The employee contribution is 1.45% of wages with no annual base limit. This amount is deducted from the employee’s paycheck and reported on Form W-2 (Wage and Tax Statement). The employer match is the same 1.45% of wages with no annual basis limit. The combined Medicare tax is 2.9% on all taxable wages.
Additional Medicare Tax
The additional Medicare tax of 0.9% was implemented in the 2013 tax year under the Patient Protection and Affordable Care Act of 2010. The additional 0.9% tax applies to wages over $200,000 for single filers, $250,000 for married couples filing jointly, and $125,000 for married individuals filing separately. Employers do not match the additional Medicare tax.