What is Federal Insurance Contributions Act (FICA) tax?

Mark Steber

Chief Tax Information Officer

Published on: July 31, 2023

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If you have a job, you are almost guaranteed to be paying FICA taxes. They might even take a big bite out of your paycheck. But what exactly are FICA taxes and how do they affect your income? Read on to find out.

What are FICA taxes used for?

Named for the Federal Insurance Contributions Act, and also called payroll taxes, FICA taxes help fund Social Security and Medicare. The money supports a wide range of benefits for millions of people, including retirement income, disability coverage, and health insurance.

Who makes FICA tax payments?

Both you and your employer(s) pay FICA taxes. The IRS determines how much FICA tax to collect based on your salary, wages, and/or other employment compensation.

If you work more than one job, you and your employer will pay FICA taxes at all your jobs.

2023 FICA tax rates

Your total FICA tax rate varies based on your compensation—how much you make—and includes a Social Security tax and a Medicare tax. The tax rates are different for each.

Social Security tax rate

The total 2023 tax rate for Social Security is 12.4% of your taxable compensation.

Your employer pays half, or 6.2%.
You pay the other half (6.2%) and will typically see it withheld from your paycheck.
You and your employer do not have to pay Social Security tax on wages above $160,200 in 2023. This is the “Social Security tax limit” and there are more details below.

Medicare tax rate

The core 2023 Medicare tax rate is 2.9%. As with the Social Security tax, you and your employer split it:

Your employer pays half, or 1.45%.
You pay the other half (1.45%) and will typically see it withheld from your paycheck.
You pay an extra 0.9% in Medicare tax on compensation above $200,000, but your employer does not. This is called the Additional Medicare Tax.

Here’s how it all breaks down:

2023 FICA tax rates summary

	Employee	Employer	Total
Social Security tax rate	6.2%	6.2%	12.4%
Social Security tax 2023 wage limit (there’s no Social Security tax on compensation above this limit)	$160,200	NA	NA
Medicare tax rate	1.45%	1.45%	2.9%
Additional Medicare Tax rate (applies to compensation above $200,000)	0.9%	NA	0.9%

Do I pay FICA taxes if I’m self-employed?

If you’re self-employed, you must pay both the employer and employee portions of FICA taxes. Your employer contributions may be tax deductible.

Keep in mind that FICA taxes are based on your total compensation for the year. That means you need to consider your total earnings from all your jobs combined when you calculate your self-employed FICA taxes, even if your self-employment doesn’t generate that much income on its own.

FICA tax limit 2023

There is a limit to how much of your income is subject to Social Security taxes. In 2023, the Social Security tax limit is $160,200, $13,200 higher than it was in 2022. This means that no matter how much you earn, you will not pay more than $9,932.40 (6.2% x $160,200) as an employee for Social Security taxes in 2023.

How to calculate FICA

To calculate your employee FICA taxes, multiply your gross pay by the current Social Security and Medicare tax rates. Employer FICA taxes are not your responsibility and do not directly affect your income or withholding.

The formula looks like this:

Total FICA tax = ((Social Security tax rate x applicable employee earnings) + (Medicare tax rate(s) x employee earnings))

2023 FICA employee tax rate examples

	Employee 1	Employee 2	Employee 3
Gross earnings	$50,000	$170,000	$210,000
6.2% Social Security tax rate (up to $160,200)	$3,100	$9,920	$9,920
1.45% Medicare tax rate	$725	$2,465	$3,045
0.9% Additional Medicare Tax rate (applies to income above $200,000)	NA	NA	$90
Total employee FICA taxes	$3,825	$12,385	$13,055

You might notice that the Social Security tax is the same for Employee 2 and Employee 3. That’s because Social Security taxes only apply to income up to $160,200. If math isn’t your strong suit, a Tax Pro at Jackson Hewitt can do the calculations for you.

Are students exempt from FICA taxes?

You generally don’t have to pay FICA taxes on wages you earn as an employee of a school, university, or college where you’re currently a student. However, you do have to pay FICA taxes on any income you earn from other employers.

Is federal income tax the same as FICA?

Federal income tax and FICA are related, but not the same. Federal income taxes help fund a wide range of government services. How much you owe depends on your filing status, income level, and which credits and deductions you qualify for. All of your annual income may be subject to federal income tax.

FICA taxes, on the other hand, are only used to fund Social Security and Medicare. They apply only to compensation you earn as an employee. Your filing status does not affect FICA tax rates and there are, generally, no credits or deductions.

Is FICA tax the same as Social Security tax?

No. FICA taxes include both Social Security tax and Medicare tax. Many employers withhold them from paychecks together under the broad heading of FICA taxes, but they have to calculate and administer them separately behind the scenes and on Form W-2.

If all of this seems a little confusing, that’s because it is. Jackson Hewitt Tax Pros are happy to answer any questions you have about your FICA taxes.

About the Author

Mark Steber is Senior Vice President and Chief Tax Information Officer for Jackson Hewitt. With over 30 years of experience, he oversees tax service delivery, quality assurance and tax law adherence. Mark is Jackson Hewitt’s national spokesperson and liaison to the Internal Revenue Service and other government authorities. He is a Certified Public Accountant (CPA), holds registrations in Alabama and Georgia, and is an expert on consumer income taxes including electronic tax and tax data protection.

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