FICA Tax: Rates, Calculation, and Employer Duties

An employee is standing at your desk holding a pay stub, pointing at a line that says "Fed MED/EE," asking what it is. And you do not entirely know either, because your payroll system produced it and nobody has ever explained the vocabulary.

This page gives you that vocabulary and everything behind the line: the 2026 rates, how to calculate the tax, how to deposit and report it, and the penalty that follows you home. The label question is the small version of this problem. The large version is that FICA is the tax with the sharpest teeth in the entire payroll system, and almost nobody who runs a small business knows why.

The money you withhold from your employees for Social Security and Medicare is not a bill you owe. It is money you are holding, and if you fail to hand it over, the IRS can reach past your LLC, past your corporation, past bankruptcy, and take it from you personally.

I build FirstHR, which holds the employee records payroll runs on. One caveat that carries real weight here: this is tax law, the wage base is reset annually, and I am not a tax professional. Verify against the IRS before you configure anything.

What Is FICA Tax?

FICA is the federal payroll tax that funds Social Security and Medicare. It is paid twice on every dollar of wages: once by the employee through withholding, and once by the employer on top.

The IRS overview of employment taxes is the official version of everything on this page, and it is short enough to read once properly.

Three facts follow from that definition, and they are the three that matter.

FICA is two taxes, not one. Social Security and Medicare are separate, have different rates, and behave differently: one has a cap and one does not. Half the confusion on this subject comes from treating FICA as a single thing.

You pay it twice. Whatever you withhold from the employee, you pay again out of your own pocket. The employee sees 7.65 percent leave their check and reasonably assumes that is the tax. The tax is 15.3 percent, and they will never see the other half on any document they receive.

The employee half is not yours. This is the fact this entire page is built around, and we will come back to it with considerable force.

The Current Rates

The current FICA rate is 7.65 percent on each side, employee and employer: 6.2 percent for Social Security plus 1.45 percent for Medicare. Here is the whole answer, on one card, and it settles most of the questions people bring to this page.

The rates themselves have held since 1990. According to the Congressional Research Service (2022) describes them as largely unchanged since then, the one break being the 2011 and 2012 payroll tax holiday, which cut the employee's Social Security share to 4.2 percent.

The only number that moves is the wage base, which is reset every January. That single fact tells you exactly what maintenance this part of payroll requires: check the wage base each year, and change nothing else.

It also tells you how to spot a stale page. If an article tells you the wage base is $176,100, it is describing 2025. If it says $168,600, that is 2024, and $160,200 is 2023. There are a great many of all three still online, and configuring payroll from one will cause you to under-withhold every high earner you employ.

Who Pays It

Both of you, equally, and this symmetry is unusual. Most payroll taxes fall on one side or the other. FICA falls on both.

Read the bottom three rows together, because they describe an asymmetry that matters enormously. The employee pays half the tax, sees only their half, and bears none of the compliance risk. You pay half the tax, see all of it, and carry all of the risk, including the risk that reaches your personal assets.

That is not a complaint. It is the correct allocation, since you are the one holding the money. But it means FICA is a much bigger deal for you than it is for the person asking you about it, and it explains why this article is longer than the one they would need.

Counted alongside unemployment tax, FICA is most of the employer tax load on top of wages. According to the Bureau of Labor Statistics Employer Costs for Employee Compensation survey (June 2026), private employers paid $2.79 per hour worked for Social Security and Medicare, against $0.03 for federal and $0.14 for state unemployment insurance.

Social Security Tax: The Capped Half of FICA

6.2 percent from the employee, 6.2 percent from you, on wages up to $184,500 in 2026. Formally it is OASDI: Old-Age, Survivors, and Disability Insurance, which is why it shows up on some pay stubs as "Fed OASDI/EE" rather than as anything containing the word Social.

The defining feature of the Social Security half is the wage base. Once an employee's year-to-date wages cross it, you stop withholding for the rest of the calendar year, and you stop matching. It is the only cap anywhere in FICA and it is the source of most of the interesting behavior.

Those figures come from the Social Security Administration, which publishes every year of the contribution and benefit base in one table. It exists for one reason as far as you are concerned: to let you check whether whatever source you are reading is current. The base rises most years, and any page quoting an old figure is a page whose other advice you should also doubt.

The maximum column is worth noting too. In 2026, the most any single employee can pay in Social Security tax is $11,439, and the most you can pay for them is the same. That is your ceiling per person, and it is one of the very few costs in payroll that has a ceiling at all.

The Medicare Half

1.45 percent from the employee, 1.45 percent from you, on every single dollar. Formally it is HI, Hospital Insurance, which is why it appears on stubs as "Fed MED/EE" or "MEDFICA" or "FICA-MED," all meaning the same thing.

Because Medicare has no cap, it is the simpler of the two to calculate and the one you are least likely to get wrong. Multiply gross by 0.0145, every period, forever. The only complication is what sits on top of it, which is the next section.

The Additional Medicare Tax

An extra 0.9 percent on employee wages above $200,000 in a calendar year. It has two properties that make it strange, and both of them trip employers up.

The second strange property: you withhold based on wages from you alone, regardless of the employee's filing status. The actual liability for this tax depends on the employee's household situation, with different thresholds for married couples, but that is settled on their tax return. Your obligation is mechanical: once they cross $200,000 with you, you withhold, and you do not adjust for anything they tell you about their spouse.

Practically, this means two things can happen and both are correct. An employee can have this tax withheld and end up owing nothing, getting it back on their return. Or an employee can have nothing withheld by you, because they earned $150,000 with you, and still owe the tax because their household total crossed the threshold. Neither is your problem, and neither is a payroll error.

How to Calculate It

The arithmetic is trivial. What is not trivial is knowing what to multiply.

That distinction is the single most common source of a FICA miscalculation at a small business, and it produces an error that nobody notices because it is small on each check and never triggers an obvious symptom. It surfaces at reconciliation, or it does not surface at all until an audit.

The other practical note: the Section 125 exception is valuable and worth understanding as a benefits decision rather than only a payroll one. A health premium taken pre-tax through a proper cafeteria plan costs you less than its face value, because you are matching FICA on a smaller wage base. It is one of the very few benefits where the tax code is generous to both sides.

Crossing the Wage Base

Something happens every fall at any business with a well-paid employee, and almost nobody explains it in advance: their paycheck suddenly gets bigger, and nothing is wrong.

The mechanics: once year-to-date wages exceed $184,500, Social Security withholding stops. Their net pay rises by 6.2 percent of gross. Medicare keeps going, because Medicare has no cap, so the increase is 6.2 percent rather than the full 7.65 percent.

Your matching contribution stops at the same moment, which is worth knowing because it is one of the very few places in payroll where your cost per employee falls. Everything else about employing someone gets more expensive over time. This gets cheaper, once a year, for your highest earners.

And then it all resets on January 1, their net pay drops back, and they ask you why. Tell them in advance, in both directions, and you will never have either conversation.

Every Pay Stub Label

Payroll systems label these two taxes about eight different ways, and every one of those labels generates employee questions that land on you. This decoder is the part of the page that will save you the most time.

These labels come out of whatever payroll system produced the stub, and the stub itself is a matter of state law. The Department of Labor's FLSA Advisor, its guide to the Fair Labor Standards Act, notes that federal law does not require pay stubs, while many states require an itemized wage statement and specify what must appear on it.

The decoder ring, in one sentence: EE means employee, ER means employer, OASDI means Social Security, MED and HI mean Medicare, and everything else is a synonym. There are only two taxes on that entire list. Every label is one of those two, or a combination of them.

The one that genuinely confuses people is a stub showing both EE and ER lines. An employee sees Fed OASDI/EE at $310 and Fed OASDI/ER at $310, adds them, and concludes they were charged $620. They were not. Only the EE line came out of their pay. The ER line is displayed for transparency and is a cost you bore, which most employers never get any credit for.

Giving employees a way to see their own stubs and year-to-date totals through an employee self-service portal removes a surprising amount of this, because the person who wants to check a number can go and check it rather than asking you.

FICA vs FIT vs FUTA

FICA and FIT are the two federal taxes withheld from every paycheck, and they are different taxes: FICA is the flat Social Security and Medicare tax, and FIT is federal income tax. FUTA is a third federal tax, for unemployment, that the employee never pays at all.

The confusion is understandable, because all three are federal and all three ride on the same payroll run. So yes, Social Security and Medicare are federal taxes. But they do not count as federal income tax, and they never appear in the federal income tax withheld figure. The W-2 keeps them apart: income tax in Box 2, Social Security in Box 4, Medicare in Box 6.

When a form or a stub asks about FICA or FIT withheld, it is asking whether either federal tax came out of the wages. FIT is calculated from the employee's W-4, is progressive, and can legitimately be zero for a low earner. FICA is a flat percentage with no allowances, so it is almost never zero. An employee with no FIT withheld still pays FICA.

FICA vs FUTA is the easier comparison. Per IRS Topic 759, FUTA is 6.0 percent on the first $7,000 of wages per employee, employer-only, and the maximum 5.4 percent credit for state unemployment tax cuts it to 0.6 percent, which is $42 per employee per year. There is nothing to withhold. The full treatment is in the FUTA guide.

Depositing It

You withheld it. Now you have to hand it over, and the schedule for doing so is not the schedule on which you pay your employees.

The full set of deadlines is in the IRS guidance on depositing and reporting employment taxes, and the calendar in employment tax due dates.

You deposit both halves together: the employee FICA you withheld, plus your matching employer FICA, in one payment. It goes through EFTPS (the Electronic Federal Tax Payment System), electronically, because there is no paper option for most employers.

Your deposit schedule is a separate thing from your pay schedule, and confusing the two is the most common way an employer who paid everybody correctly still gets penalized.

Late deposits carry a failure-to-deposit penalty that escalates in tiers with how late you are, plus interest. That penalty is annoying but survivable. What follows it, if the money never arrives at all, is not.

The practical instruction, and it is the highest-value thing in this article after the trust fund section: put all twelve deposit deadlines on a calendar today, for the whole year, with reminders. Not in your head. A careful employer rarely gets penalized for refusing to pay. They get penalized because the 15th arrived while they were busy and nobody had written it down.

Reporting It

Depositing is the money. Reporting is the paperwork, and they are separate obligations with separate deadlines.

Where these records live matters, because you must retain them. The IRS rule on employment tax recordkeeping is to keep employment tax records for at least four years after you file the fourth-quarter return for that year.

Two things in that table are worth pausing on. Box 3 and Box 5 are different numbers for any employee who crossed the wage base, because Box 3 is capped at $184,500 and Box 5 is not. An employee earning $250,000 has $184,500 in Box 3 and $250,000 in Box 5, and if both boxes match on a high earner's W-2, something is wrong.

Since the question of how to calculate Social Security wages comes up on every W-2 run: start from gross pay, subtract Section 125 premiums and any other FICA-exempt items, and cap the result at the wage base. That figure is Box 3. Do not subtract 401(k) deferrals, which is why Box 3 usually comes out larger than Box 1.

Your W-2 totals must also reconcile to your four quarterly 941 filings. The IRS and the Social Security Administration perform this check on you, and the W-2 and W-3 instructions warn that any discrepancy gets you contacted to resolve it. Run the same check yourself in December, before they do. It is a twenty-minute job.

The forms themselves are on the IRS site: Form 941 and Form W-2.

Reconciling It

Reconciliation is checking that your own numbers agree with each other. It is dull, it takes twenty minutes a quarter, and it is the highest-return habit in payroll because it catches FICA errors while they are still small enough to fix cheaply.

The three in the middle are the general payroll reconciliation every employer does, tying register, return and W-2s together. The first and last are the FICA-specific checks: whether each run withheld and matched roughly 7.65 percent, and whether Box 3 stopped at the wage base while Box 5 kept going.

The sheet below covers both, plus the setup behind them. Fill the setup tab in January so payroll carries this year's wage base and rates, run the match checks each quarter, and list the high earners in December while the W-2s can still be changed.

The data all of this depends on originates at onboarding rather than in payroll: the W-4, the pay rate, the classification. Getting it wrong there is what produces a FICA error months later.

The quarterly reconciliation against Form 941 is the one to be religious about. That form is a sworn statement of what you withheld and what you owe, and the IRS reconciles it against what actually arrived. If your register, your 941, and your deposits all agree, you are in a defensible position regardless of what else happens.

The mundane truth of small business FICA errors is that they are almost never sophisticated. A duplicated row. A wage base that was never updated. A deduction applied to the wrong base. Twenty minutes of looking finds them, and finding them in March is a different experience from finding them in a notice fourteen months later.

Fixing FICA Errors

You will make one. Everybody does. What separates a manageable error from an expensive one is catching it early and correcting it properly.

An over-withholding correction paid back to the employee is not the same as a retro pay adjustment, though the two get confused. Retro pay is wages you underpaid. A FICA refund is tax you over-collected, and they are recorded differently.

The under-withholding case is the one with teeth, and the reason is uncomfortable. Under the Treasury regulation on undercollected employee tax, you must report and pay the correct amount of FICA whether or not you ever collect it from the employee.

Recovering the employee share means deducting it from wages you pay them after you find the error. If they have already left, the regulation leaves it as a matter for settlement between the two of you, which is always a bad conversation. The obligation to withhold correctly is yours, and the consequence of failing to do so does not transfer to the employee.

The over-withholding case has a procedural wrinkle worth knowing: you cannot recover the employee share without involving the employee. Under the instructions for Form 941-X, the adjustment process requires you to repay or reimburse that share first and certify that you did. For a prior year, you must also hold written statements from those employees that they did not and will not get a refund or credit.

A refund claim is the one alternative to an adjustment. On a claim, you certify either that you repaid the employees or that you hold each affected employee's written consent to claim their share, plus the same statements for a prior year. Without repayments or consents, you can correct only your employer share. Repay them or get their consent, document it, and then file the correction.

And the general principle across every row: self-correcting is always cheaper than being found. Under the same 941-X instructions, if you correct an underreported amount on time and pay it when you file, the correction is generally interest free and escapes failure-to-pay and failure-to-deposit penalties. That treatment ends once the IRS raises the issue in an exam or sends a notice and demand for payment.

The Penalty That Follows You Home

Everything above this section is arithmetic and administration. This section is the reason FICA is different from every other cost of running a business, and if you read nothing else here, read this.

The money you withhold from your employees is not yours, and it never was. It is not revenue, it is not working capital, and it is not a bill you owe. You are holding it in trust for the government, on behalf of your employees, for a short period before handing it over. That is why the law calls it "trust fund money."

Read that last sentence again, slowly, because it is far broader than the word "willful" suggests. There is no requirement of evil intent, no requirement of an attempt to defraud, and no requirement that you meant to do anything wrong at all. Paying your landlord, when you knew the payroll taxes were due, is enough. That is the standard. It describes a decision that almost every struggling business owner has made at least once.

Three further points, each of which is the sort of thing you would rather know in advance.

It only covers the employee half of FICA. According to the IRS guidance on employment taxes and the Trust Fund Recovery Penalty, the penalty covers the unpaid income taxes you withheld plus the employee portion of the withheld FICA. Your matching employer share, though genuinely owed, is not trust fund money and is not subject to the personal penalty.

The carve-out for your match is smaller comfort than it sounds. Because all the withheld income tax counts, the trust fund piece is normally more than half of a quarterly 941 liability, not a corner of it.

The corporate form does not protect you. This is the exception to the entire premise of limited liability. The penalty survives business closure, entity dissolution, and in most cases bankruptcy. The IRS can file a lien against your home, levy your personal accounts, and garnish your future wages. An LLC is not a shield here, and neither is an S corp.

More than one person can be liable. Responsibility turns on who could effectively control which bills got paid. That can be an owner, a bookkeeper, an office manager, or a CFO, and each responsible person is jointly and severally liable for the whole amount. Being a non-owner employee does not automatically protect you, and instructions from a superior not to pay do not immunize you either.

That is the practical advice this whole section exists to deliver. Move it out of the account. Not because you lack discipline, but because the failure mode here is not dishonesty, it is a cash crunch in which the money is sitting there, indistinguishable from every other dollar, and the rent is due. If it is not in the account, that decision never presents itself.

And if you are ever in a position where paying the taxes means not paying somebody else, pay the taxes. That is the one bill where the consequence of not paying reaches past your business and follows you home.

Who Is Exempt

Almost nobody, and the exemptions people assume exist mostly do not. The real ones are statutory, and most sit in one place in the Internal Revenue Code: IRC section 3121(b) lists what is carved out of "employment" for FICA purposes, and the list is specific. The religious-group exemption is the outlier: it sits in section 3127.

Two of those carve-outs come up often enough at small businesses to state precisely. The IRS guidance on family help says payments for the services of a child under 18 are not subject to Social Security and Medicare taxes when the business is a parent sole proprietorship or a partnership in which each partner is a parent of that child.

The student exception to FICA tax covers service performed for a school, college, or university by a student who is pursuing a course of study there, and the test is whether employment or education is predominant in the relationship. Neither carve-out covers an ordinary employee who happens to be young or happens to take classes.

The contractor row is the one with real consequences attached. Misclassifying an employee as a contractor to avoid employer FICA is the most expensive routine mistake available to a small business.

The first two rows are the ones people get wrong most often. Part-time employees generate the identical FICA obligation per dollar of wages as full-time ones. Hiring part-time reduces your total wage bill and therefore your total FICA, but it does not reduce the rate, and an employer who believes part-time staff are somehow cheaper per dollar is mistaken.

And there is no age exemption, as the Social Security Administration confirms. A 70-year-old who is already collecting Social Security benefits still pays FICA on any wages they earn, and you still match it. This surprises people, and it surprises the employee more than it surprises you.

Which answers a question employees ask with some regularity: is OASDI tax mandatory? Yes. Social Security and Medicare withholding is required by law on covered wages. There is no opt-out, no election, and no waiver for an employee who would rather invest the money themselves. The narrow categories in the table are the entire list of exceptions.

If You Are the Owner

Whether you personally pay FICA depends entirely on how your business is structured, and for two of the three common structures the answer is that you do not pay FICA at all. You pay something else that costs the same.

The S corp row is where the interesting problem lives. Wages get FICA. Distributions do not. So the arithmetic says pay yourself a small salary and take the rest as distributions, and the IRS is entirely aware of that arithmetic, which is why the "reasonable compensation" requirement exists. An S corp must pay reasonable compensation to a working shareholder before making distributions, and the IRS can and does reclassify distributions as wages where the salary is implausibly low.

Note also that self-employment tax is 15.3 percent, which is not a coincidence. It is both halves of FICA, combined, because as a sole proprietor you are simultaneously the employer and the employee. You do not escape FICA by not being on payroll. You pay all of it yourself, through a different mechanism.

Wages That Confuse People

Not everything you pay an employee is obviously wages, and the answer on FICA is more consistent than people expect: almost all of it is.

Bonuses and commissions are supplemental pay, which affects income tax withholding but not FICA. IRS Publication 15 keeps the optional flat rate on supplemental wages at 22 percent for 2026, rising to a mandatory 37 percent above $1 million in a year, and neither figure touches the 6.2 and 1.45. A correction to an underpayment is retro pay, which is wages and therefore fully subject to FICA on both sides.

Severance belongs in the same bucket, and the Supreme Court settled it: in United States v. Quality Stores (2014) the Court held unanimously that severance payments to terminated employees are taxable wages for FICA purposes. Paying someone on the way out does not change what the payment is.

The gift card row deserves a note because it catches generous employers. IRS Publication 15-B states that cash and cash equivalent fringe benefits, gift certificates and gift cards included, are never excludable as a de minimis benefit (a perk too small to be worth accounting for) no matter how little they are worth.

A gift card is therefore a cash equivalent and counts as wages, at any amount. A $25 card handed out as a thank-you is technically reportable wages subject to FICA. It is a strange rule, it feels petty, and it is the rule.

And the 401(k) row is the one that quietly corrupts payroll. It sits directly above the Section 125 row for a reason: they look like the same category of deduction and they behave completely differently. Getting this wrong under-withholds FICA on every check for the entire year.

So are HSA contributions subject to FICA? Not when they run through payroll under a cafeteria plan. Per IRS Publication 969, contributions made through a salary reduction under a cafeteria plan are treated as employer contributions, which puts them outside Social Security and Medicare tax on both sides. An employee who instead funds the HSA from their own bank account gets an income tax deduction but no FICA saving.

What It Costs You

Abstract percentages are easy to nod at and hard to feel. Here is FICA as an actual line in an actual budget, for a typical small business.

The number that should stay with you is the last one: $4,590 per employee per year, on a $60,000 salary, purely in employer FICA. That is before unemployment tax, before workers' compensation, and before you have offered health insurance, a retirement match, or a single day of paid leave.

Which is why the practical rule for hiring is to never say a salary number out loud until you have multiplied it by at least 1.1, and preferably 1.3 once benefits are counted. A $60,000 hire is not a $60,000 decision. It is closer to $66,000 before you have been generous about anything, and businesses that budget on salary alone discover this in month two.

The red row matters for a different reason. Across a year, a five-person business is holding nearly $23,000 of money that is not its own. It arrives in the operating account, it sits there indistinguishable from revenue, and it leaves again. At no point is it yours, and the size of that number is a reasonable measure of the exposure you are carrying if you have never thought about where it lives.

FICA and Your State

Short section, because the answer is simple and the confusion is common. FICA is entirely federal. There is no state FICA, no state version of it, and no state that opts out.

What states have instead is their own separate payroll taxes, which sit alongside FICA and are frequently confused with it because they appear on the same pay stub and go out in the same run.

The row people conflate with FICA most often is state disability insurance, because it is another mandatory deduction that appears near the FICA lines on the stub. The California program, CASDI, is the best known example, and it is employee-funded, state-level, and has nothing at all to do with Social Security or Medicare.

The practical consequence for a multi-state employer: FICA is the one thing that does not change when you hire in a new state. Everything else does. The rate is the same in Texas and in New York, the wage base is the same, the deposit rules are the same. It is the single most portable part of payroll: when a remote hire generates a pile of new obligations, FICA is not one of them.

Where FICA Came From

Brief, and worth knowing because it explains the shape of the tax and answers the question employees actually ask, which is not "what is this" but "what am I getting for it."

The tax itself dates to the Social Security Act of 1935, whose Title VIII levied 1 percent on each side of covered wages up to $3,000, first collected in 1937. The name arrived later. According to the Social Security Administration history FAQ, the 1939 amendments moved those taxing provisions out of the Social Security Act and into the Internal Revenue Code, where they were renamed the Federal Insurance Contributions Act.

The original design principle is visible in that name: contributions, not taxes. The idea was that workers and employers would jointly fund an insurance system that workers would later draw from, which is why the tax is split evenly rather than falling entirely on one side.

Medicare came with the Social Security Amendments of 1965, and the hospital insurance tax was first collected in 1966. That is why FICA has two components with different rates and different rules: they were bolted together.

Medicare's missing cap, on the other hand, was a considered decision. According to the Congressional Research Service, the Medicare tax shared the Social Security wage base through 1990, was given a higher base of its own, and then had its base removed entirely by the Omnibus Budget Reconciliation Act of 1993.

What your employee gets for it, concretely: Social Security pays retirement benefits, disability benefits, and survivor benefits to their family. Medicare funds hospital insurance from age 65. Eligibility for both is earned through work credits, accumulated by paying this tax. So the honest answer to "what is this deduction for" is that it is buying them something specific, and it is one of the few payroll deductions where that is true.

That is also a genuinely useful thing to be able to say to an employee who resents the line on their stub. It is not disappearing into a general fund. It is the mechanism by which they qualify for the two programs most people in the US eventually rely on, and you are paying the same amount again on their behalf.

Common Mistakes

Seven recurring failures, and one of them can take your house.

Most of these are process failures rather than knowledge failures, which is the practical case for payroll automation: a system updates the wage base in January without being asked, and applies the correct base to the correct tax every single time.

The deposit calendar and the separate account are the two habits that do almost all the work. Neither is clever, neither costs anything, and together they eliminate the failure mode that ends businesses.

Frequently Asked Questions