What are FICA Taxes? Social Security and Medicare Taxes Explained

Federal taxes for Social Security and Medicare are mandatory, so understanding them is important for all HR professionals. Here’s what you need to know.

• Reviewed by Paylocity's Compliance & Government Relations Team

Table of Contents

Table of Contents

1. What are FICA Taxes?
2. Who Pays FICA Taxes?
3. How Do you Calculate FICA Taxes?
4. FICA FAQs

What are FICA Taxes?

FICA is a U.S. federal payroll tax derived from the Federal Insurance Contributions Act (FICA) portion of the 1935 Social Security Act (SSA) that helps employees fund benefits for their future, post-retirement selves under the government's Social Security program.

Today, FICA taxes include a Medicare tax along with the original Social Security tax (also known as Old Age, Survivors, and Disability Insurance or OASDI). Employees who pay these taxes build eligibility for retirement benefits useable after turning 62, as well as disability and life insurance benefits.

FICA Facts

• Created in 1935 to help fund Social Security benefits and later expanded to include Medicare.
• Consists of two payroll taxes (one for Social Security; one for Medicare) applied to every paycheck.
• Provides benefits for disability and life insurance.
• Available for retirement benefits only after the age of 62.

Who Pays FICA Taxes?

Similar to other payroll taxes, like income and unemployment, FICA taxes are mandatory for all employees and their employers. However, unlike those other taxes, employees and employers share the responsibility of paying FICA taxes every pay period. Each side contributes half of the overall amount sent to the federal government, though there are some exceptions.

FICA Exemptions

There are certain individuals who don’t have to pay FICA taxes on their wages. For example, students employed by their university or school while enrolled as a student there don’t pay FICA taxes on their income. According to the Internal Revenue Service (IRS) the other group of individuals who are exempt from FICA taxes are the following types of nonresident aliens:

• Employees of a foreign government whose salaries are paid as a result of that official role.
• Employees of an international organization whose salaries are paid as a result of that official role.
• Crew members of a ship or aircraft if the vessel and employer are from a foreign country, or if the services performed on board are done outside the U.S.
• Students, scholars, professors, teachers, etc. who perform services allowed by the United States Citizenship and Immigration Services (USCIS), such as on-campus employment as a teacher.
• Nonimmigrants who perform temporary agricultural labor.
• Residents of the Philippines who perform services in Guam.

Certain wages are also exempt from FICA taxes, regardless of the citizenship of the employee, including wages paid:

• to a duly ordained, commissioned, or licensed minister of a church
• to a child under the age of 18 by their parents
• as part of a reimbursement for mileage
• to student nurses

Self-Employed Workers

Workers who are self-employed or independent contractors still pay taxes for Social Security and Medicare, but under a separate piece of legislation called the Self-Employed Contributions Act (SECA). While this Self-Employment Tax uses the same rates for Social Security and Medicare as standard FICA taxes, the self-employed can’t share responsibility for paying these taxes since they work for themselves. They must pay the entirety of the Social Security and Medicare taxes on each paycheck.

How Do you Calculate FICA Taxes?

As mentioned above, employers and employees split the total amount owed in FICA taxes each pay period. The current FICA tax rate is 15.3% of an employee’s gross wages, but only half (7.65%) is paid by the employee, and the other half by the employer.

Social Security receives 6.20% of each half (or 12.4% of the total 15.3%), while the remaining 1.45% of each half (or 2.9% of the total 15.3%) goes to Medicare.