⬤ Payroll Tax · Employer Guide

FICA Tax Explained: What It Funds, How It’s Calculated, and What Employers Owe

Q: Do self-employed people pay FICA?

Not FICA specifically — they pay its equivalent, self-employment tax under SECA, which totals 15.3% (12.4% Social Security up to the $184,500 wage base, plus 2.9% Medicare on all net earnings). Because there is no separate employer to match, the self-employed cover both halves themselves. The employer-equivalent half is deductible against income as a partial offset.

Two small percentages on every paycheck quietly fund the two largest social insurance programs in the country. Here is the whole tax, from the ground up plainly first, then with the precision your controller will want.

IRS · FICA Withholding

Payroll Tax
Summary

FICA
7.65%

Dollar-for-Dollar

Employer Match

$184,500

2026 Wage Base

Two small percentages on every paycheck quietly fund the two largest social insurance programs in the country. FICA looks simple a flat rate, a single cap but the details are where employers slip: a wage base that moves every year, a surtax with no employer match, a deposit obligation the IRS guards more closely than almost any other. This guide walks the whole tax from the ground up, in plain language first, then with the precision your controller will want.

Most owners do not get caught out by the rate. They get caught out by treating withheld FICA as their own cash, by missing the additional Medicare surtax on high earners, or by assuming an owner-operator pays it the same way an employee does. We have written this the way we would explain it across a desk plainly first, then with the precision your controller or CPA will want.

What FICA tax actually is

FICA the Federal Insurance Contributions Act is the federal payroll tax that funds Social Security and Medicare. It is not a single tax so much as a pairing: one slice supports retirement, disability, and survivor benefits, the other supports hospital and medical coverage for people who qualify. What makes FICA distinct from the income tax sitting next to it on the same paycheck is that it is shared. The employee pays half through withholding, and the employer matches that half dollar for dollar.

Both halves flow to the IRS, which routes the money to the Social Security and Medicare trust funds. The arrangement dates back to the 1930s for the Social Security portion, with the Medicare component added decades later. People often use “FICA” and “Social Security” as if they were the same thing. They are not Social Security is one of the two programs FICA pays for, not the whole tax.

Three features separate FICA from the income tax most people picture when they think “payroll”:

It is flat, not progressive. Everyone pays the same percentage on covered wages there are no brackets the way there are for income tax.
It is shared between two parties. The employer is not just a collector; it owes a matching contribution out of its own pocket.
It has a cap on one side only. The Social Security half stops at an annual wage ceiling; the Medicare half never stops.

Social Security and Medicare, separated

FICA is easiest to understand when you stop treating it as one number and look at its two components on their own terms. They behave differently, and the difference is exactly where calculation errors creep in.

The Social Security portion

This is the larger of the two and, formally, it funds Old-Age, Survivors, and Disability Insurance. It applies a fixed rate to wages but only up to an annual ceiling called the wage base limit. Once an employee’s year-to-date earnings cross that ceiling, no further Social Security tax is withheld for the rest of the year. The wage base is adjusted upward most years to track wage growth, so the dollar cap is a moving target you should confirm each January rather than memorize.

The Medicare portion

Medicare is the smaller slice, and its defining feature is that it has no wage ceiling at all. Every dollar of covered wages is subject to it, no matter how high the salary climbs. On top of the base Medicare rate, an additional Medicare surtax applies to wages above a high-earner threshold. The wrinkle that surprises employers: the employer does not match the surtax. The employer withholds it from the employee’s pay once wages cross the threshold, but the additional amount comes entirely out of the employee’s side.

Here is the structure at a glance, with the 2026 figures. Rates are set by statute and the Social Security wage base is indexed each year, so confirm the live numbers on IRS.gov before you file:

Component (2026)	Employer	Employee	Wage ceiling
Social Security (OASDI)	6.2%	6.2%	Capped at $184,500 (max $11,439 per side)
Medicare (base)	1.45%	1.45%	No ceiling - all wages
Additional Medicare surtax	None	0.9%	Wages above $200,000 single / $250,000 MFJ / $125,000 MFS

The combined base rate is 7.65% on each side (6.2% + 1.45%), for a total of 15.3% across employer and employee. The rates themselves are unchanged from 2025; only the Social Security wage base moved, rising from $176,100 to $184,500.

Employer, employee, and the self-employed

For a conventional employee, FICA is split down the middle. The employer withholds the employee’s half from each paycheck and adds its own matching half, then deposits both with the IRS. The employee never has to do anything beyond letting the withholding happen.

The self-employed are a different story. A sole proprietor, partner, or single-member LLC owner has no separate employer to match their contribution so they effectively pay both halves themselves. This is not technically FICA; it is its mirror under the Self-Employment Contributions Act (SECA), and it combines the two halves into a single self-employment tax of 15.3% 12.4% for Social Security on income up to the $184,500 wage base, plus 2.9% for Medicare on all net earnings. The 0.9% additional Medicare tax then applies on top for earnings above the high-earner thresholds. There is a partial offset the employer-equivalent half of the tax is deductible against income but the cash obligation is real and often underestimated by new owners.

One practical consequence for closely held businesses: how an owner is classified and compensated salary versus distribution, W-2 employee versus pass-through owner changes the FICA or SECA exposure considerably. That is an entity-structure question as much as a payroll one, and it is worth getting right before the first payroll run, not after.

How to calculate FICA, step by step

FICA is one of the more mechanical calculations in payroll: a fixed percentage of eligible wages, with a single cap on the Social Security side. The accuracy lives in two places identifying which wages count, and watching the wage base as the year progresses.

Step 1 - Identify FICA-eligible wages

Start by pinning down what actually counts as covered compensation. It is broader than base salary and narrower than “everything you pay someone.” Generally included:

Step 2 - Check each employee against the wage base

Compare the employee’s year-to-date earnings against the Social Security wage base $184,500 for 2026. Below the ceiling, both halves of FICA apply. Once an employee crosses it, stop withholding the 6.2% Social Security portion for the rest of the year, but keep applying the 1.45% Medicare portion to every additional dollar Medicare has no cap.

Step 3 - Apply the surtax to high earners

When an employee’s wages pass $200,000 in a calendar year, begin withholding the 0.9% additional Medicare surtax on every dollar above that point. Remember: you withhold it, but you do not match it. This step is easy to miss because it only affects high earners and only kicks in partway through the year. Note that employers withhold based on the single $200,000 threshold regardless of the employee’s filing status — the employee reconciles the married thresholds ($250,000 jointly, $125,000 separately) on their own return.

Step 4 - Match and deposit

Calculate the employer match equal to the employee’s base Social Security and Medicare, but excluding the surtax and deposit both halves with the IRS on the schedule assigned to your business. Deposit timing is driven by your payroll size, not by your preference, so confirm which schedule applies to you.

Four salaries, side by side

Concrete numbers make the mechanics click. The table below shows a full year of FICA across four earners at 2026 rates — 6.2% Social Security up to the $184,500 wage base, 1.45% Medicare on all wages, and the 0.9% surtax on the employee’s wages above $200,000. The first three earners stay under both ceilings, so the full base rate applies to everything. The high earner crosses both: their Social Security stops at the wage base, and the surtax kicks in on wages above $200,000.

Annual figures	Junior	Manager	Senior	High earner
Gross wages	$40,000	$85,000	$150,000	$300,000
Social Security — employee (6.2%)	$2,480	$5,270	$9,300	$11,439*
Medicare employee (1.45%)	$580	$1,232.50	$2,175	$4,350
Additional Medicare surtax (0.9%)	$0	$0	$0	$900
Employee total	$3,060	$6,502.50	$11,475	$16,689
Employer match	$3,060	$6,502.50	$11,475	$15,789
Total FICA deposit	$6,120	$13,005	$22,950	$32,478

The takeaway is the symmetry and where it breaks. For every dollar of base FICA the employee pays, the employer pays one too, so the deposit is roughly double the employee’s line item. The one exception is the 0.9% surtax on high earners: the employee carries it alone, with no employer match.

Exemptions and special situations

Most compensation is subject to FICA, but the code carves out specific exceptions. If a worker or payment qualifies, you can stay compliant while avoiding withholding you do not owe. Commonly recognized exemptions include:

Certain student employees working at the school where they are enrolled
Some family employees under a set age working in a family-owned sole proprietorship or partnership
Employer contributions to qualified retirement plans on the employee’s behalf
Certain payments to specific categories of nonresident workers
Small or de minimis tip amounts below the reporting threshold

These exemptions are narrow and fact-specific, and getting one wrong in either direction creates exposure. When an exemption might apply, confirm the conditions against current IRS guidance or with a professional before changing how you withhold.

The over-withholding fix

If you withhold too much FICA often because an employee hit the wage base and the system did not stop the Social Security portion there are two clean routes to correct it: reduce future withholding to return the excess to the employee, or file the appropriate correction with the IRS to recover it. The key is to catch it within the same period rather than letting it compound across quarters.

Reporting, depositing, and the trust-fund trap

Withholding the right amount is only half the obligation. The employer must also deposit and report on schedule, and this is the area the IRS pursues most aggressively because withheld FICA is not the company’s money. It is held in trust for the government and the employee. Diverting it to cover cash flow, even briefly, is among the fastest ways to draw penalties and personal liability for the people who run payroll.

The recurring employer duties are:

Deposit on schedule. Send withheld and matching FICA to the IRS on the deposit frequency assigned to your business - monthly or semi-weekly, depending on your history.
File the periodic return. Report FICA activity on the required federal employment-tax return (quarterly for most employers, annually for the smallest).
Report to employees. Show FICA withholding on each pay stub and reconcile the annual totals on the employee’s year-end wage statement.

Thresholds, deposit schedules, and form requirements shift periodically. Confirm the current rules on IRS.gov, and build in lead time if you are setting up payroll for the first time.

Frequently Asked Questions

Is FICA the same as Social Security?

No, though they are closely related. FICA is the umbrella payroll tax that funds two programs — Social Security and Medicare. Social Security is one of the two halves, not the whole tax. The combined revenue is split between the two trust funds.

Is FICA the same as federal income tax?

No. They are separate taxes that happen to appear on the same paycheck. FICA is a flat-rate tax shared by employer and employee that funds Social Security and Medicare. Federal income tax is progressive, withheld only from the employee’s wages, and funds general government operations. One does not substitute for the other.

Do self-employed people pay FICA?

Not FICA specifically they pay its equivalent, self-employment tax under SECA, which totals 15.3% (12.4% Social Security up to the $184,500 wage base, plus 2.9% Medicare on all net earnings). Because there is no separate employer to match, the self-employed cover both halves themselves. The employer-equivalent half is deductible against income as a partial offset.

Why did my Social Security withholding stop partway through the year?

Because the Social Security portion of FICA only applies up to an annual wage ceiling $184,500 for 2026. Once an employee’s year-to-date wages cross that wage base, no further Social Security tax is withheld for the rest of the year, which is why take-home pay rises slightly. Medicare, which has no ceiling, keeps coming out of every paycheck.

Does the employer match the additional Medicare surtax on high earners?

No. The employer withholds the 0.9% additional Medicare surtax from the employee once wages cross $200,000 in a calendar year, but it does not contribute a matching amount. Unlike the base FICA components, the surtax comes entirely out of the employee’s side. (The employee’s actual liability uses filing-status thresholds $200,000 single, $250,000 married filing jointly, $125,000 married filing separately – reconciled on their personal return.)

Can a business deduct FICA taxes?

The employer’s share of FICA is generally deductible as a business expense. The portion withheld from employees is not deductible by the business, because that money belongs to the employee and is simply being passed through to the government on their behalf.

Get Started

FICA is mechanical until the details cost you. Get them right.

A missed wage-base cutoff, an unmatched surtax, or a late deposit turns a routine payroll tax into penalties and personal liability. Countsure helps owners and finance teams keep payroll-tax obligations accurate and audit-ready, from withholding mechanics to the filings that follow.