What is FICA tax?

The Federal Insurance Contributions Act (FICA) requires employers to withhold payroll taxes from each employee’s paycheck. FICA taxes help fund Social Security and Medicare programs. Social Security partially replaces the loss of income due to retirement, disability, or death. Medicare is the federal health insurance for anyone 65 and older or individuals under 65 with certain disabilities. 

Who pays FICA taxes?

Employees and employers contribute towards FICA taxes equally, with each covering half of the total required amount per paycheck. The employer must withhold the correct amount of FICA taxes from each employee's pay and is responsible for filing them, along with their own share of FICA taxes.

How are FICA taxes calculated?

FICA contributions must total 15.3% after contributions from the employee and employer. The total contribution requirement for Social Security tax is 12.4%, which breaks down to 6.2% each from the employee and employer. For Medicare, the total requirement is 2.9%, so each party contributes 1.45%. However, wage bases, or wage thresholds, can change the contribution amounts for FICA taxes.

What is the difference between FICA and federal income taxes?

While both are considered payroll taxes, FICA taxes are paid by both employers and employees. FICA tax has a flat tax rate applied to wages up to a certain limit.

Federal income tax is only paid by employees based on factors such as their filing status, exemptions, and income bracket. Federal income tax is also progressive, meaning the more an employee earns, the higher their tax rate.

How are FICA taxes filed?

FICA taxes are filed on a quarterly basis by the employer, using Form 941, also known as the Employer's Quarterly Federal Tax Return. Form 941 reports the FICA taxes that employers withhold from employees’ paychecks. It’s also used to pay the employer’s portion of FICA taxes.