FICA is composed of two taxes: Social Security and Medicare.
Social Security
Social Security is calculated by multiplying an employee’s taxable wages by 6.2%. For example, if an employee’s taxable wages are $600 this week:
- Calculation: $600.00 x 6.2% = $37.20
- Result: The above amount would be deducted from the paycheck
There is a wage base limit for Social Security. In the year 2025, this tax is calculated only on the first $176,100 that is earned. The limit solely exists for the Social Security tax and is utilized as a maximum wage that is subject to the tax for a given year.
The employer also pays this tax. They pay it at the rate of 6.2% and are subject to the same wage base limit ($176,100 for 2025).
The total amount sent to the IRS for Social Security tax in 2025 will be 12.4% of taxable wages (6.2% for the employee share and 6.2% for the employer share, for a total of 12.4%). A specific formula is used when calculating the employer share of Social Security.
- Calculation: $600.00 x 12.4% = $74.40
- Result: The total amount due for Social Security tax
Medicare
Medicare is calculated by multiplying an employee’s taxable wages by 1.45%. If an employee’s taxable wages are $600 this week:
- Calculation: $600.00 x 1.45% = $8.70
- Result: This amount would be deducted from the paycheck
There is no wage base limit for Medicare. All covered wages are subject to the tax. This is a tax that also requires an employer contribution. Employers pay it at the same rate as the employee (1.45%). If the Medicare tax for the employee portion of the tax is $8.70, then the employer’s Medicare tax amount is also $8.70.
The total amount sent to the IRS for Medicare tax is 2.9% of taxable wages (a 1.45% employee share plus 1.45% employer share is a total of 2.9%). A specific formula is used when calculating the employer share of Medicare.
- Calculation: $600.00 x 2.9% = $17.40
- Result: The total amount of Medicare tax to be paid
An additional 0.9% tax is required to be withheld on annual employee wages that exceed $200,000. There is no employer contribution for this tax. There may also be a 3.8% Medicare tax on passive investment income, which is not a payroll tax and is different from the above tax.
FICA Employee Contributions
While employees pay half of their FICA Social Security contribution, the situation changes if you are self-employed. A 1099 contractor will need to pay both the employee and employer portion of their payroll taxes.
Self-employed individuals can add or subtract 7.65% (half of the total FICA taxes, which include Social Security and Medicare) to calculate the difference between 1099 and W-2 hourly rates.
While differences in FICA contributions are the main variance between 1099 contractor and W-2 employee wages, there are other calculations that you may need to consider, such as:
- Salary
- Benefits
- Industry-specific alterations
Our pay difference calculator resource is a great place to better understand these differences.
Exceptions to FICA Taxes
While most employees need to pay FICA tax contributions, there are a few notable exceptions, including:
- Some state employees
- Some federal government employees
Most civilian federal government employees hired before 1984, for instance, are covered by and pay the 1.45% Medicare tax but do not pay for Social Security retirement benefits.
Around 25% of state and local government employees with a pension plan will also not have to pay the tax. Wages that are earned as an H-2A worker are also not subject to Social Security and Medicare taxes. For a full list of those exempted from FICA taxes, see the Social Security government website.
More About FICA Taxes
Understanding FICA and the FICA Tax Rate – Calculating FICA taxes is one thing, but truly understanding the system and process is another thing. This resource is a great place for a first-time taxpayer to start their research.
FICA Withholding Rates – FICA withholding rates are subject to change each year. Stay up to date on the most recent tax shifts.
Federal Tax Software for Small Businesses – Confused about how federal taxes apply to your small business? You are definitely not alone. Check out this resource to understand what you need to know.
Other State Taxes – Employee and/or Employer Taxes
Other state taxes that employees may be subject to are:
- Disability insurance
- State unemployment
- Local taxes
These taxes may also require an employer contribution. After learning more about these topics from our resources, you may decide to simplify your tax season further with the help of our free 1099-etc Demo software. The demo gives users an accurate glimpse at our modular system.
People Also Ask
- Can FICA taxes be refunded? – No, FICA taxes are generally not refundable during tax season. However, an employer who withholds too much for an employee with multiple jobs may create cause for a credit to be given on a tax return.
- Do FICA taxes affect bonuses and overtime work? – Yes, most supplemental wages are viewed as regular taxable wages when it comes to FICA taxes. The withholding method can vary between employers.
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