What Is FICA Tax Withholding?

by Tara Thomas ; Updated March 15, 2018

When taking a closer look at your tax return, you might notice that more than just federal income taxes are withheld from your pay. Included in these other withholdings are your contributions to Social Security and Medicare. Collectively known as FICA, or Federal Insurance Contributions Act, these employee contributions are actually not taxes – even though they’re often referred to as such – and are mandatory payroll deductions that help fund monthly benefits awarded to millions of retirees or beneficiaries.

Who Pays FICA and What Is It?

Both employees and employers are responsible for making contributions to FICA taxes. The current Social Security portion of the FICA tax is 12.4 percent of your gross earnings, of which employees are responsible for 6.2 percent, while employers are responsible for paying the other 6.2 percent on your behalf. While you will have to pay these contributions on income you earn, it is a common misconception that you have to pay this tax on the total amount of your income. In reality, Social Security contributions are withheld only on a portion of your income up to a certain amount. This threshold is adjusted annually, but for the 2017 tax year, up to $127,200 of your income is subject to Social Security contributions. This means that any income that you earn above $127,201 is free of Social Security withholding.

The second portion of the FICA tax is your Medicare contribution. At 2.9 percent of your gross income, this tax is unlike the Social Security tax in that it is applicable to all income you earn, regardless of amount. Your employer is responsible for 1.45 percent of this contribution, and you are responsible for the other half. It is this 1.45 percent for your portion of the Medicare tax that you see as a deduction on your paycheck stub.

If you earn more than $200,000 in income for the year, you will find yourself among the taxpayers hit with a third part of the FICA tax linked to Medicare. Known as the Additional Medicare tax, this .9 percent surcharge is added on top of the 1.45 percent paid for the Medication portion of FICA taxes. Passed with the Affordable Care Act, you can expect to pay a total of 2.35 percent in Medicare tax on income you earn above $200,000. Keep in mind, this surcharge is paid solely by the worker, without any contribution from the employer.

I’m Self-Employed, Do I Have FICA Tax Withholding?

As a self-employed person, you also make contributions to Medicare and Social Security, you do so differently. Self-employed taxpayers make these contributions with what is known as SECA, or Self-Employed Contributions Act, taxes. SECA taxes are just like FICA taxes, except you’re responsible for paying all of these withholdings yourself, with no contributions from an employer. Because you must pay both the employee and employer’s portion of these contributions, the IRS allows you to deduct the employer portion of these withholdings when you file taxes.

About the Author

Tara Thomas has been a writer and traveler since 1997. Her articles appear in various online publications. She also has experience authoring grant proposals for a Southern California marine science laboratory, which helped her develop a lifelong interest in environmentalism. Thomas is an event planner, has a Bachelor of Science in marine biology from California State University, Long Beach, and worked as a mortgage consultant since 1998.

Photo Credits

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