FICA Tax Guide 2024: Payroll Tax Rates & Definition

Employees are responsible for half of the total tax (7.65%), and employers pick up the other half. The total amount of tax due for all workers is 15.3% of gross earnings for 2023, though most people will see only 7.65% of that deducted from their checks because their employer pays the rest. The Federal Insurance Contributions Act, or FICA, requires that wage research and experimentation tax credit earners contribute a portion of their earnings to fund the Social Security and Medicare programs.

But if you’re an American and an employee (or an employer), chances are you’re one of the lucky millions required to pay into FICA. For example, FICA taxes do not apply to services performed by employed stimulus check students, the Internal Revenue Service says. Organizations are deemed a “school, college or university” if their function and the student’s relationship with the employer are primarily educational. According to the Internal Revenue Service (IRS), FICA taxes are made up of old-age, survivors, and disability insurance taxes (Social Security) plus the hospital insurance tax (Medicare).

Do Employers Pay FICA Taxes on Employee Tips?

1. We’ve gone over the FICA tax rates and base wage limits, so let’s look at a few examples of how to calculate FICA taxes.
2. If you only have one employer, you usually don’t have to worry about overpaying your FICA taxes.
3. Whether you work for an employer or are self-employed, you’re required to give the government a share of your earnings.
4. If you still have questions about why you have to pay the FICA tax or how it affects your income, reach out to a RamseyTrusted tax expert!

Wondering what Social Security and Medicare taxes have to do with you? Here’s what to know about the U.S. federal tax. Roosevelt believed that the money collected from all working Americans through FICA would belong directly to them. He didn’t want the financial benefits for their retirement, disability, or death to depend on federal revenue. He feared that politicians would take and use the money for their own purposes.

Those who earn more than $200,000 (or $250,000 for joint filers) are also required to pay an additional Medicare tax of 0.9%. Single filers who make over $200,000 and joint filers over $250,000 are also required to pay an additional Medicare tax of 0.9%, as per the Affordable Care Act of 2013. If you only have one employer, you usually don’t have to worry about overpaying your FICA taxes.

Business Insurance

The more tax deductions and credits you claim, the less money your employer will withhold from your paycheck. So, it’s important to make sure you accurately fill out your W-4 Form and that you update your information on that form when needed. The amount your employer sets aside for FICA is based on percentages set by the federal government.

The FICA tax rate is applied to all taxable compensation. This includes salary, wages, tips, bonuses, commissions, and taxable fringe benefits. IRS Publication 15-B has a chart of various fringe benefits that are subject to FICA and those that are exempt (see Table 2-1). If you are a solopreneur or self-employed, you are responsible for paying FICA taxes as an employer and employee — meaning you’ll have to pay twice the standard rate of 7.65%. However, the “employer” half is deductible, and you can write off that extra 7.65% when filing annual taxes.

Do I have to pay FICA?

When you earn money, the IRS wants its cut as soon as possible. A withholding tax is an income tax that a payer (typically an employer) remits on a payee’s behalf (typically an employee). The payer withholds the tax from the payee’s income.

You might also receive money related to FICA in your tax return if you have made Social Security payments on earnings over $147,000. You might also see money related to your FICA tax contribution on a tax return if you paid into Social Security on income over the $147,000 taxable minimum. That means you’ll shell out a total of $7,650 (7.65% of your taxable income) for FICA taxes.

Social Security and Medicare taxes

Driven by the suffering of the Great Depression, the FICA tax was originally created to fund an “old age” Social Security system. Signed into law by Franklin Roosevelt in 1935, its intent was to create a self-funding program rather than one reliant on federal revenue. When Medicare was created in 1965, this was also added to the tax. You can get a refund if your Social Security taxes were withheld in error from exempt pay. You should get a refund in full from your employer, otherwise, you can file a claim with the IRS.

For these individuals, there’s a 12.4% Social Security tax, plus a 2.9% Medicare tax. You can pay these levies when you pay estimated taxes every quarter. To figure out how much you owe, you can use the worksheet and instructions provided by the IRS for Form 1040-ES.

We believe everyone should be able to make financial decisions with confidence. All features, services, support, prices, offers, terms and conditions are subject to change without notice. Be sure to stay up to date, as FICA rates can change from year to year.

If you are looking to outsource Paychex can help you manage HR, payroll, benefits, and more from our industry leading all-in-one solution. Stay updated on the latest products and services anytime anywhere. These programs can also help you keep track of other deductions for both you and your employees. Tax season is upon us, but the road ahead doesn’t have to feel daunting. We’re breaking down the terms, forms and deadlines you need to know to responsibly file your taxes in 2024 – starting with FICA. Although the rate can be set annually, it has remained mostly stable since 1990.