What is FICA?
FICA stands for the Federal Insurance Contributions Act. It is the federal payroll tax that funds two major social insurance programmes: Social Security (officially Old-Age, Survivors, and Disability Insurance, or OASDI) and Medicare (Hospital Insurance, or HI).
FICA is a shared tax: both the employer and the employee each pay an equal percentage, and the employer is responsible for withholding the employee's share from their wages and remitting both portions to the IRS.
What are the FICA tax rates for 2026?
| Component | Employee Rate | Employer Rate | Combined Rate |
|---|---|---|---|
| Social Security (OASDI) | 6.2% | 6.2% | 12.4% |
| Medicare (HI) | 1.45% | 1.45% | 2.9% |
| Total FICA | 7.65% | 7.65% | 15.3% |
Social Security Wage Base Limit
The Social Security tax applies only to wages up to the annual wage base limit, which is $176,100 for 2026. Once an employee's cumulative wages for the year exceed this amount, neither the employer nor the employee owes further Social Security tax for that year.
The wage base limit is adjusted annually based on changes in the national average wage index.
Additional Medicare Tax
There is an Additional Medicare Tax of 0.9% that applies to individual wages exceeding:
- $200,000 for single filers
- $250,000 for married filing jointly
- $125,000 for married filing separately
This additional tax is paid by the employee only. The employer has no matching obligation but must withhold the additional 0.9% once wages exceed $200,000 in a calendar year, regardless of filing status.
How do employers calculate and pay FICA?
Step 1: Calculate the tax
For each payroll period, multiply the employee's gross wages by the applicable FICA rates:
Example: Employee earns $5,000 in a bi-weekly pay period:
- Social Security: $5,000 x 6.2% = $310 (employee) + $310 (employer) = $620
- Medicare: $5,000 x 1.45% = $72.50 (employee) + $72.50 (employer) = $145
- Total FICA for this period: $765 ($382.50 employee + $382.50 employer)
Step 2: Deposit the tax
Employers must deposit FICA taxes (along with federal income tax withheld) according to a deposit schedule determined by the IRS:
- Monthly depositors: Deposit by the 15th of the following month. Applies if total tax liability in the lookback period was $50,000 or less
- Semi-weekly depositors: Deposit within 1-3 business days of the payroll date. Applies if total tax liability exceeded $50,000 in the lookback period
- Next-day deposit rule: If accumulated undeposited taxes reach $100,000 or more on any day, deposit by the next business day
All deposits must be made electronically via the Electronic Federal Tax Payment System (EFTPS).
Step 3: Report the tax
- Form 941 (Employer's Quarterly Federal Tax Return): Filed quarterly to report wages paid, tips, federal income tax withheld, and both the employer's and employee's share of FICA
- Form W-2: Annual wage statement provided to each employee by 31 January, showing total FICA wages and tax withheld
- Form W-3: Transmittal of W-2 forms to the Social Security Administration
What wages are subject to FICA?
FICA applies to most forms of compensation, including:
- Salary and hourly wages
- Bonuses and commissions
- Tips (if $20 or more per month)
- Taxable fringe benefits
- Sick pay (first 6 months)
- Vacation pay
FICA does not apply to:
- Employer contributions to qualified retirement plans
- Employer-paid health insurance premiums
- Certain disability payments (after 6 months)
- Workers' compensation payments
- De minimis fringe benefits
What are the penalties for FICA non-compliance?
- Failure to deposit: Penalties range from 2% (1-5 days late) to 15% (more than 10 days after IRS notice)
- Failure to file Form 941: 5% of unpaid tax per month, up to 25%
- Trust fund recovery penalty: The IRS can hold responsible individuals (owners, officers, payroll managers) personally liable for the employee's share of unpaid FICA taxes. This is one of the few tax penalties that cannot be discharged in bankruptcy
How Grove HR Helps
Grove HR automatically calculates employer and employee FICA contributions each pay period, tracks the Social Security wage base cap, applies the Additional Medicare Tax at the $200,000 threshold, and generates pre-filled Form 941 data. The system sends deposit reminders aligned with your IRS deposit schedule to prevent late-deposit penalties.
Frequently Asked Questions
Is FICA the same as Social Security tax?
Not exactly. FICA includes both the Social Security tax (6.2%) and the Medicare tax (1.45%). When people refer to 'Social Security tax,' they typically mean only the 6.2% OASDI portion, which is one component of the total 7.65% FICA obligation.
Do self-employed individuals pay FICA?
Self-employed individuals pay the Self-Employment Tax (SET) under the Self-Employment Contributions Act (SECA), which is the equivalent of FICA. They pay both the employer and employee shares (15.3% total) on their net self-employment income, though they can deduct the employer-equivalent portion on their income tax return.
What happens when an employee works for multiple employers?
Each employer must withhold FICA independently. If the employee's combined wages exceed the Social Security wage base, the employee can claim a credit for excess Social Security tax paid when filing their individual tax return. There is no mechanism for employers to coordinate.
Rachel Richardson
Head of Growth & Marketing, Grove HR
Rachel leads growth and marketing at Grove HR, with over a decade of experience in UK HR technology. She writes practical guides to help small businesses navigate employment law and build better workplaces.