The Federal Insurance Contributions Act, or FICA, is a federal government payroll tax that employees pay to fund two future benefits. Your Social Security tax under FICA contributes to support for retirement, disability, surviving dependents and spouses of eligible workers, says the Internal Revenue Service. The medical portion of FICA taxes is a separate contribution that the government uses to fund and manage the federal Medicare health insurance program.
FICA Tax Deduction Rates
Your contribution to both programs that are part of our country’s social safety net is mandatory. Exemptions for these taxes are only available for certain classes of employees or when your annual gross income exceeds a maximum set by the federal government.
The federal government sets the rate or deduction percentage of your gross income for your FICA taxes. These percentages are not divided equally between the two parts of this tax. Your employer always provides a statement of two separate FICA tax deductions on your pay statement.
The FICA deduction rate for Social Security is set at 6.2 percent of your gross wages in 2020. For your contribution to Medicare, the rate is 1.45 percent. Taken together, your total FICA contribution is 7.65 percent of your earnings.
FICA Maximum Income Social Security Exemption
Under the FICA tax provisions, in 2020, you pay the Social Security portion on earnings of less than $137,700. The Internal Revenue Service notes that any income that you earn over this amount will be exempt from contributions to the Social Security fund. However, your Medicare FICA contribution has no exemption under FICA.
You continue to contribute the 1.45 percent on wages of more than $137,700 until your income reaches $200,000 per year. Your FICA Medicare tax then increases to 2.35 percent every pay period after you cross this threshold.
Student FICA Exemption
College or university students who work for the institution they attend are eligible for exemption from FICA taxes, according to the IRS. The main requirement for getting this exemption is being classified as a student, whether full-time or part-time. This exemption requires you to enroll in a course of study at the university or college as your primary activity.
Your exemption is 100 percent of both parts of the FICA tax. However, this exemption does not apply to any earnings that you make while working for an employer outside of your school.
Nonresident Worker FICA Exemption
The IRS regulations also provide an exemption from FICA tax for employees of foreign governments who work in the United States. To qualify for this exemption, the employee must perform duties in an official capacity of the foreign government. This exemption does not apply to nonimmigrants and nonresidents who work for an American company.
The IRS includes various temporary visa categories as the basis for eligibility for this exemption. In the case of foreign nonresident students, the exemption applies to any earnings from on-campus and off-campus work, if it is allowed. The exemption doesn’t apply to spouses or other family members who accompany international students.
- Internal Revenue Service: Topic No. 751 Social Security and Medicare Withholding Rates
- Internal Revenue Service: Student FICA Exception
- Internal Revenue Service: Aliens Employed in the U.S. Social Security Taxes
- Social Security Administration. "Fact Sheet: 2021 Social Security Changes." Accessed Oct. 31, 2020.
- Internal Revenue Service. "Topic No. 554 Self-Employment Tax." Accessed Oct. 31, 2020.
- Internal Revenue Service. "Social Security/Medicare and Self-Employment Tax Liability of Foreign Students, Scholars, Teachers, Researchers, and Trainees." Accessed Oct. 31, 2020.
- Internal Revenue Service. "Social Security Tax / Medicare Tax and Self-Employment." Accessed Oct. 31, 2020.
- Internal Revenue Service. "Publication 519: U.S. Tax Guide for Aliens," Page 43. Accessed Oct. 31, 2020.
- Cornell Law School Legal Information Institute. "U.S. Code Section 6511. Limitations on Credit or Refund." Accessed Oct. 31, 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.