What is FICA?
So what is FICA and why is it taking so much money out of your paycheck?
Most employers and their employees are required to pay FICA taxes, which is a type of payroll tax, to the IRS. The amount of money that goes to FICA depends on how much money the employee makes.
The Federal Insurance Contribution Act, FICA, was introduced in the 1930s and required employers and their employees to make contributions to fund Medicare and Social Security programs. The FICA rate is set annually but doesn’t always change each year. And because it’s based on a certain percentage, employees who have a higher income will typically have to pay more in FICA taxes.
You can calculate how much your employee will owe in FICA taxes by multiplying their gross pay by the Social Security and Medicare tax rates. Once this number is calculated, match how much your employee pays.
Social Security calculation:
Gross pay x 6.2% = Social Security contribution
Medicare calculation:
Gross pay x 1.45% = Medicare contribution
Total FICA taxes calculation:
Social Security contribution + Medicare contribution = Total FICA taxes
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What payments are not subject to FICA taxes?
FICA taxes only apply to your employees’ earned income, not income like dividends, short-term capital gains, or pensions.
• Any wages you pay after an employee’s death
• Any wages you pay to a disabled employee after they became eligible for Social Security benefits
• Standard employee expense reimbursements (travel expenses not exceeding government per diem rates)
• Payments to your own children if they’re under 18
• Tips that total less than $20 per month
• Workers’ compensation
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