The Federal Insurance Contributions Act (FICA) is a U.S. law that requires all employers and employees or self-employed to pay a percentage of their earnings towards the country’s Social Security and Medicare programs. We have made it easy to calculate tax contributions for both employees and self-employed persons with our free online FICA tax calculator.
What is FICA tax
Social security tax, also known as “Old-Age, Survivors, Disability, Insurance (OASDI)” tax and Medicare tax collectively called FICA tax. Social security tax is levied on employers and employees or self-employed to fund the Social Security program in the U.S. Which helps federal government to provide assistance when you retire, survivor benefits for your family if you die and disability benefits etc.
The Medicare tax is generally deducted from your paycheck as part of your FICA tax. The fund gathered by Medicare tax is spent on providing health insurance for those age 65 and older as well as people with disabilities or those who have end stage renal disease.
Normally, when a person files a claim for social security benefits at full age of retirement (66 years and 2 months) in 2023, will pertain maximum volume is $3,627 per month. You will receive a higher benefit amount if you delay taking your full retirement benefits up to age 70.
How much are FICA tax rates?
In FICA, each employer and employee pay 7.65% (6.2% for Social Security and 1.45% for Medicare) of their income. The FICA tax must be paid in full by self-employed workers. For these individuals, there’s a 12.4% Social Security tax, plus a 2.9% Medicare tax.
However, there is an additional Medicare tax of 0.9% which is only applicable to someone if he earns more than a set of thresholds, which are as follows:
- Married couples filing joint taxes who earn over $250,000 per year
- If married and filing separate taxes, those earning more than $125,000 annually
- The other single tax filers who earn more than $200,000 annually
Limits on FICA tax
The Social Security tax wage limits apply to all employers and employees or self-employed who pay this. This means that gross income above a certain threshold is exempt from this tax. For 2022, it’s $147,000. The Social Security Administration recently announced that the wage limits for computing Social Security tax will increase to $160,200 for 2023.
What is the right way to calculate FICA tax?
It is easy to calculate the FICA contribution. Simply multiply employers and employees or self-employed gross pay by the Social Security and Medicare tax rates. Check the following examples.
Calculating FICA Social Security Tax:
Multiply your monthly gross pay $8,000 with 6.2% for employers and employees but if you’re self-employed then multiply monthly gross pay $8,000 with 12.4%.
Formula :
Social security tax = Gross Wages × 6.2%
Social Security tax = $8,000 × 6.2%= $496.00
When you are self-employed, then:
Social security tax = $8,000 × 12.4%= $992.00
Calculating FICA Medicare Tax :
Taxes on Medicare, however, do not have a wage limit. It is subject to compensation for this tax. Employers and employees should multiply their monthly gross pay with 1.45% respectively but if a person self-employed then he has to multiply income with 2.9%.
Formula:
Medicare tax = Gross income × 1.45% or 2.9%
Medicare tax = $8,000 × 1.45%= $116.00
When you are self-employed, then:
Medicare tax = $8,000 × 2.9%= $232.00
So total FICA tax (social security and Medicare tax) a person(employer and employee) or self-employed s has to pay on monthly gross pay of $8,000 is $612.00 , $1,224.00 respectively.
Who is exempt from FICA taxes?
While the FICA tax is paid by most workers, the tax doesn’t apply to all kinds of income. Payments that are not subject to FICA taxes include:
- All those foreigners who are temporarily resident in the USA.
- Non-Profit organizations like education institutions or charitable organizations scientific.
- Some churches and qualified church-controlled organizations pay wages.
- Government salaries at the state and local levels.
- Children employed by their parents under 18 age.
- Employed students perform service at a college, university, or school.
- State or local government employees who are entitled to be pension only require to pay a portion of the FICA Medicare tax.
- Wages paid after the worker’s death.627
