The FICA tax (Federal Insurance Contribution Act) is a social security tax. This tax is deducted at source i.e from the salary/wages of employees by the employer. FICA is a social security tax because funds collected by the government is used for social security benefits and Medicare health insurance for people. FICA tax is applicable to employer and employee. Its equivalent, Self Employment Tax is applicable to people who are self-employed.
What is included in FICA tax?
Under FICA, two taxes are included -social security and Medicare tax. Additional Medicare tax is imposed under Affordable Care Act .
FICA tax Calculator
What are FICA tax rates?
For 2021, the FICA tax rate is 15.30% which is split equally between the employer and employee. So Employer deducts the FICA tax of 7.65%. (6.2% for Social Security and 1.45% for Medicare) from wages of an employee and deposits, the combined contribution (its own 7.65%) totalling 15.3%.
Is there a limit on FICA tax?
All employer & employee are charged FICA tax which consists of social security tax and medicare tax. There is a wage limit on the collection of social security tax from an employee, however, there is no wage limit for Medicare.
The aggregate FICA tax for an employee is capped at $142, 800 for the year 2021 ($137,000 for the year 2020). It means that the maximum social security tax that can be deducted during 2021 is $8,853.60.
How to calculate FICA tax?
Calculating FICA tax contribution for an employee is easy. Just multiply their gross pay by the Social Security and Medicare tax rates. For example,
- The taxable wages of Mr Richard is $900 for the week
- Employer will deduct social security contribution would be: $900.00 x 6.2% = $55.80.
- Further,deduction for Medicare contribution would be: $900.00 x 1.45%= $13.05.
- So, the total deduction from Mr Richard wages would be $55.80+$13.05= $66.85 .
- The employer would also have to pay equally i.e $66.85 of FICA tax.
Who needs to pay additional Medicare tax ?
The IRS under the Affordable Care Act introduced an Additional Medicare Tax in 2013. This additional Medicare tax is applicable only if the combined earning from Medicare wages and self-employment income exceeds the threshold given below
|Filing Status||Threshold Amount|
|Married filing jointly||$250,000|
|Married filing separately||$125,000|
|Head of household||$200,000|
However, the law for withholding additional medicare tax by an employer applies the moment your wages cross $200,000. It means that even if your earning as per your filing status does not cross the threshold if your wages with an employer crosses $200,000, additional medicare tax must be withheld @ 0.9%
Who Needs to File Form 8959 for Additional Medicare Tax ?
If you are subject to additional medicare tax withholding, you must file Form 8959. In other words, if the employee is getting wages plus tips is more than $200,000 (Refer your W-2).
You must also file Form 8959 if your total Medicare wages and tips plus your self-employment income if any are greater than the threshold amount as per your filing status [refer to the table above]. You can read IRS instruction on form 8959