For the Medicare tax, each contributes 1.45% of the total wages, with no upper limit. To summarize, both the employee and employer typically pay 7.65% in total for FICA taxes, which is the sum of their contributions to Social Security and Medicare. The Social Security tax is subject to an annual wage base limit, which means only earnings up to a specified amount are taxed. Income above this limit is not subject to the 6.2% Social Security tax. However, Medicare tax applies to all earnings, with an additional 0.9% surtax for incomes exceeding $200,000 for individuals contribution margin or $250,000 for couples filing jointly.
Social Security
In this guide, I’ll break down the most common paycheck stub abbreviations, show you what they mean, and help you read your pay stub without second guessing. If you use a provider like ADP, these codes can get even more cryptic. But each one tells you something important about your pay, deductions, and taxes. Because it funds Social Security and Medicare, programs you’ll likely use in the future.
How FICA Tax Impacts Your Paycheck
- Two separate taxes are added together and treated as one amount that is referred to as “payroll taxes” or FICA.
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- A – Address/Action in Care “How should I address these issues in your healthcare?
- The FICA tax also is not imposed on unearned income, including interest on savings deposits, stock dividends, and capital gains such as profits from the sale of stock or real estate.
- This study suggests FICA is a feasible tool for the clinical assessment of spirituality, and responses to the FICA were correlated to many aspects of quality of life.
Employers are not required to match this extra Medicare tax, making it solely the responsibility of the employee to cover this additional cost. FICA generates money for Social Security and Medicare programs through taxes imposed on nearly every employee and employer in the United States. Signed under the Social Security Act of 1935, FICA was first enacted to provide financial benefits for retired workers aged 65 or older. In 1965, FICA expanded with the passage of the Medicare Act, a law that established a health insurance program for the elderly. Every year, the IRS sets annual limits on the amount of income that can be taxed for Social Security. Income exceeding this limit is not subject to Social Security taxes, although it will continue to be taxed for Medicare without any wage base limit.
Social Security tax
For 2025, the Social Security tax applies only to the first $176,100 of wages earned, while the Medicare tax has no wage limit. Employers are required to withhold the correct amount from their employees’ pay and forward it to the government. The Federal Insurance Contribution Act (FICA) consists of two taxes on employee wages – the Social Security tax at 6.2% and the Medicare tax at 1.45%. The total FICA rate is 15.3%, split equally between employer and employee contributions (7.65% each). High earners pay Additional Medicare tax, which is 0.9% of wages earned above $200,000 with no employer match required. The Federal Insurance Contributions Act (FICA) tax — split equally between you and your employees — funds Social Security and Medicare benefits that fica meaning protect Americans at every life stage.
Are there any exemptions from FICA taxes? Who Is Exempt from FICA Taxes?
Abbreviations on your pay stub are shorthand for earnings, taxes, and deductions. Now that we have answered the question “What is FICA on my paystub?” and understood all its components, it is essential to keep in mind the benefits of paying such taxes. As for calculating the FICA deduction on paystub with the correct rate, Real Check Stubs has you covered. FICA taxes could be overwhelming, especially for the self-employed, but they are essential in helping retirees and other qualified beneficiaries. It is important to remember that the IRS requires employers to begin withholding the FICA Debt to Asset Ratio deduction on a paystub once an employee’s income exceeds $200,000 annually.
Funding Social Programs
The State Unemployment Tax Act (SUTA) — also known as “state unemployment insurance” (SUI) — is a payroll tax required from employers. States place these taxes into their unemployment funds to pay benefits to employees who have separated from their employer. Social Security limits the amount of income subject to taxation. This amount is also referred to as the “wage base limit” or the “taxable maximum.” It changes every year depending on the national average wage index. However, this limit only applies to employees who pay Social Security taxes.