The short answer: FICA is the federal payroll tax that funds Social Security and Medicare. For 2026, employees pay 6.2% Social Security on the first $184,500 of wages and 1.45% Medicare on all wages, a combined 7.65%, and employers pay a matching 7.65%. Employees also pay a 0.9% additional Medicare tax on wages above $200,000, which the employer withholds but does not match. Self-employed people pay both halves as self-employment tax.
Key Takeaways
- Two parts:2% Social Security and 1.45% Medicare, paid by both employee and employer.
- One cap: Social Security stops at $184,500 of wages in 2026; Medicare never stops.
- High earners: an extra 0.9% Medicare tax applies above $200,000, with no employer match.
- Self-employed: pay 15.3% self-employment tax on 92.35% of net earnings, and deduct half.
- Trust funds: withheld FICA belongs to the government; late deposits can make owners personally liable.
- Reporting: deposits monthly or semiweekly, Form 941 quarterly (or 944 annually), W-2s each January.
FICA looks simple, a flat rate and a single cap, but the details are where employers slip: a wage base that changes every year, a surtax with no employer match, and a deposit obligation the IRS enforces more strictly than almost any other. Most owners are not caught out by the rate. They are caught out by treating withheld FICA as their own cash, by missing the additional Medicare tax on high earners, or by assuming an owner pays it the same way an employee does.
What FICA Tax Actually Is
FICA, the Federal Insurance Contributions Act, is the federal payroll tax that funds Social Security and Medicare. It is really a pair of taxes: one part supports retirement, disability and survivor benefits, and the other supports hospital insurance for people who qualify. What makes FICA different from the income tax on the same paycheck is that it is shared. The employee pays half through withholding, and the employer matches it dollar for dollar.
Both halves go to the IRS, which passes the money to the Social Security and Medicare trust funds. The Social Security portion dates from the 1930s; Medicare was added in 1965. People often use “FICA” and “Social Security” as if they meant the same thing. They do not: Social Security is one of the two programs FICA pays for.
Three features separate FICA from income tax:
- It is flat, not progressive. Everyone pays the same percentage on covered wages. There are no brackets.
- It is shared. The employer is not just a collector; it owes a matching amount from its own funds.
- It has a cap on one side only. Social Security stops at an annual wage ceiling; Medicare does not.
Social Security and Medicare, Separated
FICA is easiest to understand as two components. They behave differently, and that difference is where calculation errors happen.
The Social Security Portion
This is the larger part, formally Old-Age, Survivors, and Disability Insurance (OASDI). It applies 6.2% to wages up to an annual ceiling called the wage base. Once an employee’s year-to-date wages pass the ceiling, no more Social Security tax is withheld for the rest of the year. The wage base usually rises each year with average wages, so confirm it each January.
The Medicare Portion
Medicare is the smaller part, 1.45%, and it has no wage ceiling. Every dollar of covered wages is taxed. On top of that, an additional 0.9% Medicare tax applies to wages above $200,000. The part that surprises employers: the employer withholds the additional tax but does not match it. It comes entirely from the employee’s side.
| Component | Employer | Employee | Wages taxed |
|---|---|---|---|
| Social Security (OASDI) | 6.2% | 6.2% | First $184,500 of wages (maximum $11,439 each side) |
| Medicare (base) | 1.45% | 1.45% | No ceiling, all wages |
| Additional Medicare tax | None | 0.9% | Wages above $200,000 (withholding threshold) |
| Combined base rate | 7.65% | 7.65% | 15.3% in total |
The rates are unchanged from 2025. Only the Social Security wage base moved, from $176,100 to $184,500. Confirm current figures in IRS Publication 15 before you run payroll
Employer, Employee, and the Self-Employed
For an ordinary employee, FICA is split down the middle. The employer withholds the employee’s half from each paycheck, adds its own matching half, and deposits both with the IRS. The employee does nothing beyond having the tax withheld.
Self-employed people are different. A sole proprietor, a partner, or the owner of a single-member LLC taxed as a sole proprietorship has no separate employer to match the tax, so they pay both halves themselves. Technically this is not FICA but its counterpart under the Self-Employment Contributions Act (SECA). Self-employment tax is 15.3%, made up of 12.4% Social Security and 2.9% Medicare, applied to 92.35% of net self-employment earnings. The Social Security part stops at the $184,500 wage base, reduced by any W-2 wages the owner also earned. The 0.9% additional Medicare tax applies above the filing-status threshold. Half of the self-employment tax is deductible against income, but the cash cost is real and new owners often underestimate it.
| FICA (employees) | Self-employment tax (SECA) | |
|---|---|---|
| Who pays | Employee and employer, half each | The owner pays both halves |
| Rate | 7.65% each side (15.3% total) | 15.3% (12.4% Social Security + 2.9% Medicare) |
| Base | Wages | 92.35% of net self-employment earnings |
| Social Security cap | $184,500 of wages | $184,500, reduced by any W-2 wages |
| Additional 0.9% Medicare | Withheld over $200,000 of wages | Applies over the filing-status threshold |
| Deduction | Employer deducts its half | Owner deducts half of SE tax against income |
| Paid through | Payroll withholding and deposits | Quarterly estimated tax, Schedule SE |
For closely held businesses, how an owner is paid matters. An S corporation owner who works in the business pays FICA on a reasonable salary but not on distributions, while a sole proprietor pays self-employment tax on all net earnings. That is an entity structure question as much as a payroll one, and it is worth settling before the first payroll run. Countsure’s business tax team can model the options.
How to Calculate FICA, Step by Step
FICA is one of the more mechanical payroll calculations: a fixed percentage of eligible wages, with one cap on the Social Security side. Accuracy depends on two things: identifying which wages count, and watching the wage base as the year goes on.
Step 1: Identify FICA Wages
Covered compensation is broader than base salary but narrower than everything you pay someone. It generally includes:
- Salary, hourly wages, overtime, commissions and bonuses
- Tips the employee reports to you
- Most taxable fringe benefits
- Employee pre-tax 401(k) deferrals, which are exempt from income tax but still subject to FICA, a common point of confusion
Pre-tax health premiums paid through a Section 125 cafeteria plan are not FICA wages.
Step 2: Check Each Employee Against the Wage Base
Compare each employee’s year-to-date wages with the Social Security wage base, $184,500 for 2026. Below the ceiling, both parts of FICA apply. Once an employee passes it, stop the 6.2% Social Security tax for the rest of the year, but keep applying 1.45% Medicare to every additional dollar.
Step 3: Apply the Additional Medicare Tax to High Earners
When an employee’s wages from you pass $200,000 in a calendar year, start withholding the 0.9% additional Medicare tax on every dollar above that amount. You withhold it but do not match it. It is easy to miss because it affects only high earners and starts partway through the year. Employers use the $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 Social Security and base Medicare tax but excluding the additional Medicare tax, and deposit both halves with the IRS on your assigned schedule. The schedule depends on the size of your past payroll tax liability, not on preference.
Four Salaries, Side by Side
The table shows a full year of FICA for four employees at 2026 rates: 6.2% Social Security up to $184,500, 1.45% Medicare on all wages, and 0.9% additional Medicare on wages above $200,000. The first three stay under both thresholds. The high earner passes both: Social Security stops at the wage base, and the additional Medicare tax applies to the last $100,000.
| 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 (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 deposited | $6,120 | $13,005 | $22,950 | $32,478 |
*Capped at the 2026 wage base: $184,500 × 6.2% = $11,439.
For every dollar of base FICA the employee pays, the employer pays one too, so the deposit is roughly double the employee’s amount. The one exception is the additional Medicare tax, which the employee carries alone.
Want payroll taxes calculated and deposited for you?
Countsure’s payroll service handles FICA withholding, the employer match, deposits and quarterly returns, including the wage base cutoff and the additional Medicare tax.
Exemptions and Special Situations
Most compensation is subject to FICA, but there are specific exceptions. If a worker or payment qualifies, you should not withhold. The common ones:
| Worker or payment | Condition | FICA treatment |
|---|---|---|
| Child under 18 working for a parent | Sole proprietorship, or a partnership where each partner is a parent | Exempt |
| Spouse working for a spouse | Any business | Subject to FICA (exempt from FUTA only) |
| Student working for their school | Enrolled and regularly attending classes | Exempt |
| F-1, J-1, M-1 and Q-1 nonresident aliens | Work within the purpose of the visa, while a nonresident alien | Exempt |
| Section 125 cafeteria plan premiums | Pre-tax health, dental and vision premiums | Exempt |
| Employer retirement plan contributions | Contributions to a qualified plan | Exempt |
| Employee 401(k) deferrals | Pre-tax elective deferrals | Subject to FICA |
| Tips under $20 in a month | Not reported to the employer | Not subject to FICA |
These rules are narrow and fact-specific, and a mistake in either direction creates exposure. When an exemption might apply, check the conditions in IRS Publication 15 or with a professional before changing how you withhold.
Fixing Over-Withholding
If you withhold too much FICA, often because payroll did not stop Social Security at the wage base, you can repay the employee in a later pay period in the same year, or correct it on Form 941-X. Before claiming a refund from the IRS for the employee’s share, you must repay the employee or get their written consent. Fix it in the same quarter where you can, rather than letting it carry across periods.
A different case: when an employee works for two employers in the same year, each employer withholds up to the wage base, so the total can exceed $11,439. That is not an employer error. The employee claims the excess as a credit on their own Form 1040.
Reporting, Depositing, and the Trust Fund Trap
Withholding the right amount is only half the job. The employer must also deposit and report on time, and this is where the IRS is most aggressive, because withheld FICA is not the company’s money. It is held in trust for the government. Using it to cover cash flow, even briefly, can lead to the Trust Fund Recovery Penalty: 100% of the unpaid withheld tax, assessed personally against the owners and officers responsible for paying it.
The recurring duties:
- Deposit on schedule. Your schedule is monthly or semiweekly, based on your total employment taxes in a lookback period. If you accumulate $100,000 or more on any day, you must deposit by the next business day. If your total for a quarter is under $2,500, you can pay with the return. Deposits are made electronically, usually through EFTPS.
- File the return. Report FICA and income tax withholding on Form 941 each quarter, or on Form 944 annually if the IRS has told you to file it.
- Report to employees. Show FICA withholding on each pay stub, and give employees Form W-2 by January 31, filing Forms W-2 and W-3 with the Social Security Administration by the same date.
FICA works alongside FUTA, the federal unemployment tax, which the employer pays alone and reports once a year on Form 940. If you are setting up payroll for a new company, build in time for EIN and state registrations; see our US company registration page.
Frequently Asked Questions
1. What is FICA tax?
FICA, the Federal Insurance Contributions Act, is the federal payroll tax that funds Social Security and Medicare. For 2026, employees pay 6.2% Social Security on wages up to $184,500 and 1.45% Medicare on all wages, and employers match both amounts.
2. What is the FICA rate for 2026?
7.65% for the employee and 7.65% for the employer, 15.3% in total. That is 6.2% Social Security on wages up to $184,500 plus 1.45% Medicare on all wages. Employees also pay an additional 0.9% Medicare tax on wages above $200,000, which the employer withholds but does not match.
3. Is FICA the same as Social Security?
No, though they are closely related. FICA is the payroll tax that funds two programs, Social Security and Medicare. Social Security is one of the two parts, not the whole tax.
4. Is FICA the same as federal income tax?
No. FICA is a flat-rate tax shared by employer and employee that funds Social Security and Medicare. Federal income tax is progressive, is withheld only from the employee, and funds general government spending.
5. Do self-employed people pay FICA?
Not FICA itself. They pay self-employment tax under SECA: 15.3% (12.4% Social Security up to the $184,500 wage base, plus 2.9% Medicare) on 92.35% of net self-employment earnings. The 0.9% additional Medicare tax applies above the filing-status threshold. Half of the self-employment tax is deductible against income.
6. Why did my Social Security withholding stop partway through the year?
Not to unexercised options. It does apply to shares you receive when you early exercise options before they vest, because those shares are restricted stock. Those elections follow the same 30-day rule from the exercise date.
7. What if two employers withheld Social Security on more than $184,500 in total?
You must report the fair market value of the property at grant. A defensible valuation, such as a current 409A valuation or an independent appraisal, supports that figure if the IRS later questions it.
8. Does the employer match the additional Medicare tax?
No. The employer withholds the 0.9% additional Medicare tax once an employee’s wages pass $200,000 in the calendar year, but does not pay a matching amount. The employee’s actual liability depends on filing status ($200,000 single, $250,000 married filing jointly, $125,000 married filing separately) and is reconciled on their own return.
9. Are tips and overtime still subject to FICA after the 2025 tax law?
Yes. The deductions for qualified tips and overtime pay created in 2025 reduce federal income tax only. Tips and overtime remain fully subject to Social Security and Medicare tax.
10. Can a business deduct FICA taxes?
The employer’s share of FICA is deductible as a business expense. The employee’s share withheld from wages is part of the wages already deducted, so it is not deducted a second time.
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, a CPA-led firm, helps owners and finance teams keep payroll tax withholding, deposits and filings accurate. Fill out the form below, or book a call directly.
- No-obligation consultation
- Confidential review of your payroll setup
- Withholding, deposits and returns handled by one team
Other Related Services
- What Is FUTA? The Federal Unemployment Tax, Explained: the employer-only unemployment tax, the 5.4% credit and Form 940.
- Payroll Service: payroll processing, payroll tax deposits and quarterly and annual filings.
- Payroll Services FAQs for US Companies: common questions about outsourcing payroll.
- Hire a Payroll Expert: a dedicated payroll specialist for your team.
- Business Tax Services: entity and owner compensation planning and business returns.
Parth Shah, Managing Director
(CPA-US, FCA, RV-S&FA, DISA)
Parth Shah who is head of Accounts and Book keeping has experience of more than 10 years. A Certified Public Accountant – US, fellow Chartered Accountant, Registered Valuer and Diploma in Information System Audit.
