How are FICA Taxes Calculated?
Let’s assume an employee, John, earns a salary of $50,000 per year. Calculate the respective FICA tax.
1. Social Security Tax Calculation
Rule:
Employee’s Social Security Tax: 6.2% of John’s wages up to the income threshold ($1,47,000 for 2022).
Employer’s Social Security Tax: Also 6.2% of John’s wages up to the same income threshold.
Employee’s Social Security Tax = 6.2% of $50,000 = 0.062 × $50,000 = $3,100
Employer’s Social Security Tax = $3,100 (matching the employee’s contribution)
2. Medicare Tax Calculation
Rule:
Employee’s Medicare Tax: 1.45% of all of John’s wages.
Employer’s Medicare Tax: Also 1.45% of all of John’s wages.
Employee’s Medicare Tax = 1.45% of $50,000 = 0.0145 × $50,000 = $725
Employer’s Medicare Tax = $725 (matching the employee’s contribution)
3. Additional Medicare Tax Calculation (if applicable)
Rule: If John’s annual salary exceeds the threshold of $200,000 for single filers, he will be subject to an additional Medicare tax of 0.9% on wages above $200,000.
4. Total FICA Taxes
Rule:
Total Employee FICA Taxes = Employee’s Social Security Tax + Employee’s Medicare Tax + Additional Medicare Tax (if applicable)
Total Employer FICA Taxes = Employer’s Social Security Tax + Employer’s Medicare Tax
Total Employee FICA Taxes = $3,100 (Social Security) + $725 (Medicare) + $0 (Additional Medicare) = $3,825
Total Employer FICA Taxes = $3,825
What is FICA Tax & How it Works : Rates & Exemptions
FICA stands for Federal Insurance Contributions Act, which is a U.S. federal payroll tax that funds Social Security and Medicare programs. FICA taxes are withheld from employees’ paychecks and are also contributed by employers. The tax consists of two components, Social Security Tax and Medicare Tax. Social Security gives money to retired people, disabled individuals, and some widows and widowers. Medicare is a program that helps older people and some disabled people pay for their medical needs.
Geeky Takeaways:
- The FICA tax, integral to the U.S. tax system, ensures funding for Social Security and Medicare programs.
- Social Security benefits include retirement income, support for the disabled, and assistance to surviving spouses and children of deceased workers.
- Medicare provides health insurance to people aged 65 and older and some younger individuals with disabilities.
Table of Content
- How do FICA Taxes Work?
- Who Pay FICA Tax and Why?
- How are FICA Taxes Calculated?
- Wage Base Limits of FICA Tax
- FICA Tax Exemptions
- Do Non-US Citizens have to pay FICA Taxes?
- Conclusion
- FICA Tax – FAQs