The Federal Insurance Contributions Act (FICA) taxes fund Social Security and Medicare, impacting nearly all U.S. workers. Understanding these rates is crucial for accurate payroll calculations, self-employment tax planning, and maximizing take-home pay. Here’s a breakdown of the current and upcoming FICA rates, how they work, and who pays what.
What is FICA?
Established in 1935, FICA ensures funding for essential social programs. It includes two main components:
- Social Security: Provides retirement, disability, and survivor benefits.
- Medicare: Funds hospital and medical coverage for seniors and certain disabled individuals.
The Total FICA Tax Rate
The combined FICA tax rate remains at 15.3% for both 2025 and 2026. This is split evenly between employers and employees:
- Employee: 7.65%
- Employer: 7.65%
Breaking Down the Components
The 15.3% is divided into two parts:
- Social Security: 12.4% (6.2% employee, 6.2% employer)
- Medicare: 2.9% (1.45% employee, 1.45% employer)
The Social Security Wage Base
Social Security tax applies only up to a certain annual wage limit. For 2025, this limit is $176,100, increasing to $184,500 in 2026. Any earnings exceeding these amounts are not subject to Social Security tax. This cap exists because Social Security benefits themselves are also capped, ensuring fairness across income levels.
The Medicare Tax: No Income Limit
Unlike Social Security, Medicare tax has no income cap. All earnings are subject to the 2.9% rate. However, high earners face an additional 0.9% Medicare tax on wages exceeding:
- $200,000 (single filers)
- $250,000 (married filing jointly)
This brings the total Medicare tax for high earners to 2.35% on income above these thresholds. Employers are required to withhold this additional tax once wages surpass $200,000.
How FICA Works on Your Paycheck
Let’s illustrate with an example: If your gross wages are $1,500:
- Social Security: $1,500 × 6.2% = $93
- Medicare: $1,500 × 1.45% = $21.75
Total FICA withholding: $114.75. Your employer also contributes $114.75.
Self-Employment and FICA
Self-employed individuals pay the full 15.3% FICA tax because they act as both employer and employee. However, the IRS allows deducting half of this self-employment tax from adjusted gross income, reducing overall income tax liability.
Who Pays Different FICA Rates?
Most employees pay the standard rate. Exceptions include:
- High earners subject to the Additional Medicare Tax.
- Some state and local government workers.
- Nonresident aliens with specific visa statuses.
- Members of qualifying religious groups.
Reducing FICA Taxes
While FICA taxes are mandatory, certain strategies can mitigate their impact:
- Employer HSA contributions are exempt from FICA.
- S-corporation owners can reduce self-employment tax by structuring compensation properly, adhering to IRS rules for reasonable salary payments.
Final Takeaway
For 2025 and 2026, the FICA tax rate remains consistent: 7.65% for employees and 15.3% for self-employed workers. Stay informed about the rising Social Security wage base and the Additional Medicare Tax thresholds to optimize tax planning effectively.
Understanding FICA helps workers estimate take-home pay, plan self-employment taxes, and know when they’ve maxed out Social Security contributions.
