What Is FICA Tax Withholding?

by Lillian Teague ; Updated September 11, 2015
FICA withholdings reduce the amount of employee paychecks by a certain percentage.

FICA tax withholding from paychecks involves Social Security and Medicare payroll taxes collected under the Federal Insurance Contributions Act, known as FICA. The withholding section of your pay stub shows the amount from your paycheck being paid into Social Security.

History

Enacted in 1935, FICA provides for Social Security under Title II of the act. The ability to tax income to fund Social Security is provided in Title VIII. According to the Social Security Administration, the provisions for collecting FICA taxes were given under the Internal Revenue Code by amendments adopted in 1939. The tax on payroll to fund Social Security is often described as a contribution to system.

Covered Provisions

The U.S. government introduced FICA in order to deal with three major problems in the early 1930s: the lack of disability income insurance, the lack of health insurance for the elderly, and the lack of government-mandated retirement savings. FICA originally provided the means to pay for Social Security retirement and disability income. In the 1960s, FICA taxes were increased in order to also pay for Medicare, which addressed the lack of health insurance for the elderly.

Wage Calculations

FICA withholding is calculated based upon an established taxation rate. For 2012, the rate of Social Security withholding was 4.2 percent up to a limit of $4,624.20. Medicare withholding was 1.45 percent. The base amount of income taxable for FICA is referred to as the Social Security wage base. For 2012, the base was $110,100, as stated by the Social Security Administration. The increase of average national wages results in an increase of the Social Security wage base. In addition to the amount withheld from an employee's pay, in 2012 the employer pays 6.2 percent social security and 1.45 percent Medicare. Overpayments of FICA during the year are counted toward refund amounts allowed on federal income tax returns.

Self- employement FICA

Self-employed people pay taxes similar to FICA. They pay the entire percentage 13.3 percent that is traditionally split between and employer and the employee. However, the base income for the tax is 92.35 percent of the business' net earnings instead of gross earnings. Other differences in calculations make the self-employment tax equal to that of the FICA withholding.

Exemptions

Exemptions exist for FICA withholding for student workers enrolled at least half-time in college. Non-resident aliens in the United States under F-1, M-1 or J-1 visa who are performing services under the purpose of the visas are also exempt from FICA withholding, according to Vanderbilt University.

Additional Medicare Tax in 2013

Employees earning over $200,000 annually will be required to pay an additional .9 percent Medicare tax beginning in 2013. This will be withheld once their earnings reach $200,000 for the year. This is in addition to the 1.45 percent Medicare tax.

About the Author

Lillian Teague is a professional writer and editor with more than 15 years of experience in taking hard-to-understand subjects and making them easily understood. She's written thousands of articles for newspaper, periodicals and the Internet. Published work includes VA publications, MMS publications, USAF's The Mobility Forum, Wheretostay.com, Rateempire.com, 1Loansusa.com and many others.

Photo Credits

  • Tax Calculator on wooden table image by Adam Radosavljevic from Fotolia.com