Your paycheck or pay statement always includes a list of deductions such as required taxes, health insurance and Social Security contributions. Although your taxes and health insurance payments depend on the information that you submit to your employer, Social Security deductions do not. By law, you and all other employees must pay a set percentage of your gross income every time you receive your pay.
Social Security Taxes
The Federal Insurance Contributions Act is the law that mandates Social Security deductions for employees. The total amount of your contributions goes to two funds.
At 6.2 percent of your gross earnings in 2020, AARP notes that the largest portion of this mandatory deduction is for the Social Security fund. Your employer also deducts 1.45 percent of your wages for your contribution to Medicare. Neither you nor your employer can reduce or change the amount that you contribute to FICA.
Employee Total FICA Calculation
Your two required FICA deductions in 2020 equal 7.65 percent of your gross wages. To calculate your total FICA hit each pay period or annually, multiply your gross income by the decimal equivalent of the mandated percentage rate. For example, since 0.0765 multiplied by $100 equals $7.65, for every $1,000 of gross pay, you’ll lose $76.50 to FICA.
If your annual gross wages are $20,000, your FICA deductions for the year total $1,530. The Social Security portion of your annual FICA payment equals $1,240. The Medicare portion will total $290. Normally, your employer will show the amount of your deductions for each pay period and your total contributions to date.
Self-Employed Workers FICA Calculations
Employers also pay 7.65 percent of your earnings into FICA on your behalf, without deducting this amount from your pay. The Self-Employment Contributions Act, or SECA, makes self-employed workers responsible for paying both the worker’s and employer’s contributions to Social Security.
When you are self-employed, your FICA rate is 15.3 percent of your gross income. Your Social Security tax totals 12.4 percent. Medicare costs for the self-employed total 2.9 percent. If you are self-employed, you should pay the appropriate amount each quarter, or every three months.
FICA Maximum Income Threshold
Both FICA and SECA have maximum thresholds for mandatory deductions. However, this threshold only applies to your contributions to Social Security, according to AARP. The 2020 maximum income subject to Social Security tax is $137,700.
Once you have paid the correct amount into FICA for annual wages or income below this threshold, you won’t be subject to Social Security deductions for that year. Your Medicare deduction continues regardless of income.
Additional Medicare Taxable Income Deduction
The Internal Revenue Service notes that the Medicare portion of your FICA contribution will increase when your income reaches $200,000 during any calendar year. Your employer must deduct an additional 0.9 percent from your gross income the first pay period after this happens and every following pay period. This additional deduction brings your total Medicare contribution to 2.35 percent instead of 1.45 percent. You continue to pay this rate every pay period until you reach the end of the calendar year.
- AARP: What Is The Current Social Security Tax Rate?
- AARP: What Is The Income Cap For Social Security?
- Internal Revenue Service: Topic No. 751 Social Security and Medicare Withholding Rates
- Social Security Administration. "What Are FICA and SECA Taxes?" Accessed April 1, 2020.
- Social Security Administration. "2021 SOCIAL SECURITY CHANGES." Accessed Oct. 15, 2020.
- Internal Revenue Service. "Topic No. 751 Social Security and Medicare Withholding Rates." Accessed Nov. 5, 2020.
- Social Security Administration. "Supplemental Security Income Overview." Accessed April 1, 2020.
Carol Luther has published feature articles in print magazines, ghostwritten blogs, and produced digital content since 2007. She has published personal finance and small business articles for the Houston Chronicle, Mahalo, the Nest, USA Today, Wahm, and Zacks. Carol has designed, implemented and managed multi-year, multimillion-dollar domestic and international projects services for higher education, nonprofits, and small to medium businesses for more than 20 years.