What is FICA Tax?

FICA stands for the Federal Insurance Contributions Act. FICA taxes fund Social Security and Medicare and are paid on employees' wages. The IRS describes them in Publication 15.

The rates

• Social Security: 6.2% withheld from the employee and 6.2% paid by the employer, on wages up to the annual Social Security wage base, which is adjusted each year
• Medicare: 1.45% withheld from the employee and 1.45% paid by the employer, on all wages
• Additional Medicare tax: 0.9% withheld from the employee only, on wages paid to an employee above $200,000 in a calendar year; there is no employer match

Reporting and deposits

Both shares are deposited with federal income tax withholding on your deposit schedule and reported quarterly on Form 941. Year-end totals appear on W-2s in boxes 3 through 6.

Trust fund portion

The employee share withheld from wages is a trust fund tax. Failing to pay it over can make responsible individuals personally liable; see the trust fund recovery penalty.

Self-employed people

Self-employed individuals pay the equivalent through self-employment tax, which covers both shares.

Exceptions

Some payments are exempt from FICA, such as wages paid to a child under 18 by a parent's sole proprietorship, certain fringe benefits and some retirement plan contributions. See paying family members and fringe benefits.

Related terms

• Exempt and Non-Exempt Employees: Non-exempt employees must receive overtime under federal law; exempt employees meet specific tests that remove that requirement.
• Fringe Benefits: Fringe benefits are forms of pay other than wages, such as health coverage, vehicles or discounts, which are taxable unless an exclusion applies.
• Self-Employment Tax: Self-employment tax is the Social Security and Medicare tax paid by people who work for themselves, calculated on net earnings from self-employment.

Browse more definitions in the small business glossary.