What is FICA Tax?

FICA stands for the Federal Insurance Contributions Act. It is a U.S. federal payroll tax that is deducted from each paycheck. The funds collected through FICA are used to fund two major social insurance programs: Social Security and Medicare. Both employees and employers are required to pay FICA taxes.

How FICA Tax Works: Two Key Components

FICA tax is composed of two separate taxes, each with its own rate and rules:

• Social Security Tax: This tax funds retirement, disability, survivor, and spousal benefits. The employee tax rate is 6.2%, but it only applies up to a certain annual income limit, known as the "wage base limit." For 2024, this limit is $168,600. Any income earned above this amount is not subject to Social Security tax.
• Medicare Tax: This tax funds the hospital insurance component of Medicare (Part A). The employee tax rate is 1.45% on all earnings, with no income limit. Additionally, high earners are subject to an Additional Medicare Tax of 0.9% on income above certain thresholds.

Frequently Asked Questions (FAQ)

What are the FICA tax rates for 2024?

For employees in 2024, the rates are:

• Social Security: 6.2% on the first $168,600 of earnings.
• Medicare: 1.45% on all earnings, plus an additional 0.9% on earnings over the threshold for your filing status.

Employers match these contributions, paying 6.2% for Social Security and 1.45% for Medicare on behalf of each employee.

What are the thresholds for the Additional Medicare Tax?

The 0.9% Additional Medicare Tax applies to wages earned above the following annual thresholds:

• Married Filing Jointly: $250,000
• Married Filing Separately: $125,000
• Single, Head of Household, Qualifying Widow(er): $200,000

For more information, you can visit the official page on this topic from the Internal Revenue Service (IRS).

How is FICA tax different for self-employed individuals?

Self-employed individuals are responsible for paying both the employee and employer portions of FICA taxes. This is known as the Self-Employment (SE) tax. The total SE tax rate is 15.3% (12.4% for Social Security up to the wage limit + 2.9% for Medicare on all net earnings). However, they can deduct one-half of their SE tax when calculating their Adjusted Gross Income (AGI).