FICA Payroll Tax — Social Security and Medicare Taxes on Wages

The Federal Insurance Contributions Act (FICA) tax is one of the most broadly applied taxes in the United States, paid by most wage earners and their employers. If you have ever looked at a pay stub and wondered what "FICA" means, this is it: a combined 7.65% generally withheld from employee wages under the Social Security wage base, matched dollar-for-dollar by the employer, to fund Social Security and Medicare. For most workers, FICA matters more day to day than income-tax brackets because it shows up on nearly every paycheck.

Current Law (2026)

Legal Authority

• 26 U.S.C. § 3101 — Employee FICA rate: imposes 6.2% Social Security tax and 1.45% Medicare tax on employee wages; 0.9% additional Medicare Tax on wages above thresholds
• 26 U.S.C. § 3102 — Employer withholding duty: requires employers to deduct and remit employee FICA from wages as paid
• 26 U.S.C. § 3111 — Employer FICA rate: imposes matching 6.2% Social Security and 1.45% Medicare excise tax on employers for each employee in their employ
• 26 U.S.C. § 3121 — Definitions: defines "wages" broadly as all remuneration for employment, with specific exclusions; establishes the contribution and benefit base (wage cap) cross-referenced from Social Security Act § 230
• 26 U.S.C. § 1401 — Self-Employment Contributions Act (SECA): imposes 12.4% Social Security tax and 2.9% Medicare tax on net self-employment income; 0.9% additional Medicare Tax above same thresholds
• 26 U.S.C. § 1402 — Net earnings from self-employment: defines the SECA tax base, excluding real estate rents unless from a dealer, S-corporation income, and certain other items
• 26 U.S.C. § 3301 — FUTA rate: imposes 6% Federal Unemployment Tax on employers on first $7,000 of each employee's wages
• 26 U.S.C. § 3306 — FUTA definitions: employer threshold is $1,500 in wages in any quarter, or at least one employee on 20 days in different weeks

How FICA Works for Employees

Every paycheck you receive from an employer, your employer withholds 6.2% of your gross wages for Social Security and 1.45% for Medicare, for a total of 7.65%. Your employer then pays an identical 7.65% from its own funds directly to the IRS. From the federal government's perspective, 15.3 cents of every dollar you earn up to the wage base funds your retirement and healthcare — you pay half, your employer pays the other half.

The Social Security portion applies only up to the wage base, which adjusts upward each year for wage inflation. In 2026, once you have earned $184,500 from a single employer, no further Social Security tax is withheld for the rest of the year. Medicare has no wage cap — 1.45% continues on every dollar you earn, no matter how much you make.

High earners face one additional layer: the Additional Medicare Tax of 0.9%, enacted in 2010 as part of the Affordable Care Act. Your employer withholds this automatically on wages above $200,000, but the actual threshold depends on your filing status — $250,000 for married filing jointly, $200,000 for single. If you and a spouse both earn $150,000, you owe the Additional Medicare Tax as a couple even though neither employer withheld it. The difference gets settled when you file your return.

How FICA Works for Self-Employed Workers

If you work for yourself — as a freelancer, consultant, sole proprietor, gig worker, or owner of an unincorporated business — you pay the Self-Employment Contributions Act (SECA) tax instead of FICA. The rates are the same: 12.4% Social Security + 2.9% Medicare = 15.3% total, but you pay both the employee and employer share yourself.

Three deductions soften the blow. First, you calculate SECA on 92.35% of your net self-employment income (not 100%), because employees effectively get a break since their employer's portion is not counted as their income. Second, you can deduct one-half of your SECA liability as an above-the-line deduction on your Form 1040, reducing your income tax. Third, if you set up a SEP-IRA or Solo 401(k), contributions reduce the net self-employment income on which SECA is calculated.

The SECA calculation applies to all net earnings from self-employment — after deducting business expenses but before retirement contributions. Partners in partnerships (other than limited partners in most cases), LLC members treated as general partners, and S-corporation shareholders who receive wages from their corporation all have SECA or FICA implications. S-corp owners can reduce SECA exposure by paying themselves a reasonable W-2 salary and taking remaining profits as distributions — distributions are not subject to SECA, but the salary must be reasonable or the IRS will reclassify distributions as wages.

What Wages Are (and Are Not) Subject to FICA

Section 3121 defines "wages" broadly as all remuneration for employment including cash, the cash value of non-cash benefits, and most fringe benefits. However, specific exclusions matter:

Excluded from Social Security (but not Medicare): Wages above the annual wage base ($184,500 in 2026).

Excluded from FICA entirely:

• Employer contributions to qualified retirement plans (401(k) employer match, pension contributions)
• Employer-paid health insurance premiums
• Dependent care assistance up to $7,500 in 2026 under § 129
• Educational assistance up to $5,250
• Payments to ministers of religion performing services in their ministerial capacity (who instead pay SECA)
• Student FICA exception — students employed by the school they attend
• Railroad workers (covered by separate Railroad Retirement Tax Act)

Compensation that IS subject to FICA even if not traditional wages: Bonuses, commissions, tips over $20/month (employees must report tips to employers; employers withhold FICA on reported tips), and most fringe benefits.

Federal Unemployment Tax (FUTA)

Related but separate: the Federal Unemployment Tax Act (FUTA) imposes a 6.0% tax on the first $7,000 of wages paid to each employee each year — but only on employers, never on employees. Most employers receive a credit of up to 5.4% for state unemployment taxes paid to their state, reducing the effective federal rate to 0.6%, or $42 per employee per year at the minimum base. FUTA revenue funds the federal-state unemployment insurance system's administrative costs and loans to states that run out of unemployment trust funds during recessions.

How It Affects You

State Variations

FICA and FUTA are purely federal — states do not impose their own FICA-equivalent taxes. However, all states except Texas and a handful of others have their own state unemployment insurance (SUI) taxes paid by employers. State SUI rates vary enormously — from under 1% to over 10% for employers with poor layoff histories — and apply to varying wage bases.

Several states, including California, New Jersey, New York, and Hawaii, have state disability insurance programs that impose additional payroll deductions on employees, functioning like a mini-FICA for short-term disability coverage. These are distinct from FICA and do not flow to the federal Social Security or Medicare programs.

Implementing Regulations

The IRS regulations implementing FICA, FUTA, and income-tax withholding live at 26 CFR Part 31 — Employment Taxes and Collection of Income Tax at Source (351 sections across 7 subparts). Key provisions:

Subpart B — Federal Insurance Contributions Act (FICA)

• § 31.3101-1 and -2 — Employee tax: measured by wages received with respect to covered employment. Specifies the 6.2% OASDI rate (applied only up to the annual wage base) and 1.45% Medicare rate (applied to all wages); the 0.9% Additional Medicare Tax is addressed in § 31.3102-4.
• § 31.3111-1 and -2 — Employer tax: matching 6.2% OASDI and 1.45% Medicare imposed on the employer's wage payments. The employer is solely liable for the employer share and cannot deduct it from the employee's check.
• § 31.3121(a) series — Wage definition and exclusions: what counts as "wages" for FICA purposes. Key exclusions include sick pay from third-party insurers (§ 31.3121(a)(2)-1), retirement plan distributions (§ 31.3121(a)(3)-1), fringe benefits excluded under § 132 (§ 31.3121(a)(5) series), and payments after retirement or death (§ 31.3121(a)(13)-1). Tips under $20/month per employer are excluded; cash tips above that threshold are FICA wages (§ 31.3121(a)(12)-1).
• § 31.3121(d)-1 — Who is an "employee": the foundational common-law test. A worker is an employee if the employer has the right to control not just the result of the work but the manner and means of performing it. The regulation distinguishes officers, statutory employees (certain drivers, insurance agents, home workers), and common-law employees from independent contractors. Misclassification as an independent contractor triggers retroactive FICA on both the employer and employee shares.

Subpart D — Federal Unemployment Tax Act (FUTA)

• § 31.3301-1 and -2 — Persons liable and measure of tax: any employer paying wages to covered employees owes FUTA on wages up to the statutory wage base ($7,000/year per employee, set by statute and not regularly increased). The gross rate is 6.0%; most employers pay an effective rate of 0.6% after the maximum 5.4% state credit.
• § 31.3302(a)-1 — State contribution credit: employers who pay state unemployment insurance (SUI) taxes on time receive a credit against FUTA of up to 5.4%, dropping the effective federal rate to 0.6%. Employers in states with outstanding federal unemployment loans ("credit reduction states") receive a reduced credit and pay a higher effective FUTA rate.
• § 31.3306(a)-1 — Who is an employer for FUTA: any person who paid $1,500 or more in wages in any calendar quarter or employed at least one worker on any day in 20 or more calendar weeks during the current or prior year.

Subpart E — Collection of Income Tax at Source (Withholding)

• §§ 31.3401-series — Wage definition for withholding purposes: generally tracks the FICA definition but with different exclusions. Explains which payments are not subject to income-tax withholding (combat pay, certain fringe benefits, designated Roth contributions).
• § 31.3402(a)-1 — Employer withholding obligation: every employer paying wages subject to income-tax withholding must deduct and withhold the correct amount, determined from the employee's Form W-4 elections and the IRS withholding tables. The employer is liable to the IRS for the amount required to be withheld whether or not it was actually deducted from the employee's wages.
• § 31.3406 — Backup withholding (28%): applies when a payee fails to furnish a correct TIN to the payer for payments such as interest, dividends, and non-employee compensation. Employers and other payers must withhold and remit the flat backup withholding rate.

Subpart G — Administrative Provisions

• Deposit schedules, employment-tax return filing rules, penalties for failure to deposit, and procedures for correcting under- or over-withheld amounts. Employers with large FICA and withholding liabilities must deposit via EFTPS on a semi-weekly or monthly schedule; end-of-year reconciliation runs through Form 941 (quarterly) and Form W-2/W-3.

Part 31 is implemented alongside IRS Publication 15 (Circular E) (the practitioner's guide to deposit schedules, wage definitions, and annual payroll administration), IRS Publication 15-A (special wage payments and statutory employee rules), and SSA annual contribution and benefit base announcements that set the Social Security wage cap each year.

Pending Legislation

The Social Security wage base remains a perennial policy target. Proposals to eliminate the cap entirely or reimpose payroll tax above a higher threshold continue to appear in Social Security solvency debates, but as of April 8, 2026, the operative current-law rule is still the ordinary annual wage base announced by SSA and reflected in IRS employer guidance.

Recent Developments

• The 2026 Social Security wage base increased to $184,500: SSA and IRS employer guidance now use $184,500 as the 2026 taxable maximum for the Social Security portion of FICA and SECA.
• FICA rates themselves remain unchanged: The employee and employer rates are still 6.2% for Social Security and 1.45% for Medicare, with the 0.9% Additional Medicare Tax still applying only on the employee side above the statutory thresholds.
• The § 129 dependent-care exclusion changed in 2026: Public Law 119-21 increased the exclusion for employer-provided dependent care assistance to $7,500, which affects one of the common wage exclusions employers evaluate when determining FICA wages.
• Worker-classification enforcement still matters: IRS and employment-tax risk continues to center on whether workers are properly treated as employees or independent contractors, because a reclassification can trigger retroactive FICA, FUTA, withholding, and penalty exposure.