Quick Answer: FICA is a payroll tax on earned income that covers a 6.2% Social Security tax and a 1.45% Medicare tax.
If you’ve watched “Friends,” you can probably relate to Rachel opening her first paycheck and asking, “Who’s FICA? Why’s he getting all my money?” If you asked, you were probably told it was a federal tax, but nothing else. If you want more specific answers to questions like “How much is the FICA tax rate?” you’ve come to the right place.
Based on our experience helping Americans file their taxes each year, TurboTax knows those acronyms on your paycheck aren’t always clear. So we’ve gathered everything you need to know about the FICA tax so you can make sure your taxes are accurate.
What Is FICA Tax?
FICA stands for the Federal Insurance Contributions Act, which President Franklin D. Roosevelt signed into law in 1935. The first FICA tax was collected in 1937.
Because FICA is deducted from earned income by the employer and sent to the IRS on the worker’s behalf, it is considered a payroll tax.
Every worker pays into FICA to provide current Social Security and Medicare Part A hospitalization benefits with the promise that when the worker retires, they will have access to the same benefits paid by current workers. Any FICA revenue not used to pay current benefits is placed into a trust fund to help keep the programs afloat.
Social Security Tax
Before the Great Depression, no support system existed for those unable to work due to disability or age, leaving a significant portion of Americans vulnerable.
Social Security (originally referred to Old-Age, Survivors, and Disability Insurance, or OASDI), was created to provide retirement and disability income to those unable to work. Recognizing the importance of the program, President Roosevelt established FICA to pay for it rather than relying on general tax revenues.
In 1965, President Lyndon B. Johnson established the Medicare program to provide health insurance to retired workers and added a Medicare tax to FICA to fund the program.
FICA Tax Rates and Limits
FICA rates are regularly adjusted by Congress based on demographics and inflation.
2022 FICA Tax Rate
In 2022, a worker will pay 7.65% of their income in FICA tax. Of that, 6.2% goes toward Social Security tax, while the other 1.45% is dedicated to the Medicare tax. The employer deducts this amount from the worker’s paycheck based on the worker’s W-4 and remits the payment to the IRS semi-weekly or monthly.
The employer matches these percentages for a total tax of 15.3%.
2022 FICA Tax Limits
The FICA tax applies only to earned income; it does not apply to income from dividends, interest or real estate rentals.
In 2022, FICA tax is only collected on the first $147,000 of earned income. Once that threshold is reached, FICA is no longer withheld from a paycheck.
However, a 0.9% tax is applied to earnings over $200,000 (as a single filer) or $250,000 (as a married filing joint) for Medicare. Employers are not required to match this tax.
FICA Tax Rates for the Self-Employed
If you are self-employed, you are responsible for the entire 15.3% FICA tax according to the Self-Employed Contributions Act (SECA), passed in 1954.
In general, you are expected to pay estimated quarterly taxes if you expect to owe $1,000 or more annually for your taxes. If you skip making quarterly estimated payments or pay late, you may be subject to a penalty come tax time.
FICA Tax Exemptions
FICA is a mandatory tax, but there are some exceptions, such as:
- College students who work a job on campus where they are pursuing a course of study
- Some classes of nonimmigrants and nonresident aliens
- Members of certain religious sects such as the Amish
By opting out of FICA, these groups agree to not receive the Medicare or Social Security benefits the tax covers.
How to Calculate Your FICA Tax
To calculate how much you pay in FICA taxes each year, multiply your gross pay (up to $147,000) by 7.65%. In 2022, you cannot pay over $11,242.50 in FICA taxes.
If you are self-employed, multiply your gross pay (up to $147,000) by 15.3%. In 2022, you cannot pay over $22,491.00 in FICA taxes.
As stated earlier, the amount withheld from your paycheck is adjusted based on the deductions you file in the W-4 with your employer, so it is important to accurately complete that paperwork. Use our W-4 tax withholding calculator to see how to adjust your W-4 for a bigger tax refund or more take-home pay.
If you switch jobs mid-year or you work multiple jobs at once, over- or underpayment of your FICA tax may occur. To make sure the proper amount is being withheld, or to ask questions about your current FICA taxes, reach out to TurboTax Live to get help from a live tax expert. Whether you are self-employed and need to pay the full 15.3% on your own or an employee responsible for the 7.65%, TurboTax can help guide you through the FICA tax rates so your tax return is accurate. Fully hand your taxes over to a TurboTax Live tax expert available in English and Spanish and get your taxes done from start to finish. All from the comfort of your home.Sources: SSA | IRS | SSA