FICA (Federal Insurance Contributions Act)

FICA, the Federal Insurance Contributions Act, is the US payroll tax that funds two federal programs: Social Security and Medicare. It is split into two pieces that each apply to wages. The employee pays a share, and the employer matches it. The IRS summarizes the rates on Tax Topic 751. For any US company that runs payroll for a common-law employee, FICA is the difference between gross pay and what actually lands in the bank, and it is a direct cost on the employer side as well.

How FICA Is Calculated

FICA has a Social Security component and a Medicare component.

• Social Security. Per IRS Topic 751, the rate is “6.2% for the employee” and “6.2% for the employer,” for “12.4% total.” This applies only up to an annual wage base limit. Once an employee’s wages cross that cap in a year, no further Social Security tax is withheld for the rest of the year.
• Medicare. Per the same source, the rate is “1.45% for the employee” and “1.45% for the employer,” for “2.9% total.” Medicare has no cap. The IRS states “There’s no wage base limit for Medicare tax. All covered wages are subject to Medicare tax.”

Adding the two employee pieces gives 7.65 percent withheld from the worker. The employer pays a matching 7.65 percent out of its own pocket. Together that is the 15.3 percent combined FICA rate.

The Social Security Wage Base

The 6.2 percent Social Security tax stops at an annual ceiling, the wage base, which the government adjusts each year. The IRS states “For earnings in 2026, this base limit is $184,500” (Topic 751). Wages above that figure in the same calendar year are not subject to the 6.2 percent Social Security portion. The 1.45 percent Medicare portion keeps applying to every dollar of wages because Medicare has no cap.

The Additional Medicare Tax

High earners owe a further 0.9 percent Additional Medicare Tax on top of the standard 1.45 percent. Per Topic 751, an employer withholds this on “wages paid in excess of $200,000 in a calendar year, without regard to filing status.” This is an employee-only tax. There is no employer match, so the employer’s Medicare rate stays at 1.45 percent regardless of how much the employee earns.

FICA Versus Self-Employment Tax

FICA applies to the employer-employee relationship. The employer withholds the employee half and pays the employer half. A genuine independent contractor is not on payroll, so the engaging company does not pay an employer share for that worker. Instead the contractor pays self-employment tax, which covers both halves. The IRS states “The self-employment tax rate is 15.3%,” consisting of “12.4% for social security” and “2.9% for Medicare” (IRS self-employment tax page). The combined 15.3 percent matches the combined FICA rate, which is why misclassifying an employee as a contractor shifts the employer half of that cost onto the worker.

Common Pitfalls

• Forgetting the employer match. FICA is not just a deduction from the worker. The employer owes an equal 7.65 percent, so a salary’s true cost is higher than the gross.
• Withholding Social Security past the cap. Once wages cross the annual wage base, the 6.2 percent portion stops for that year.
• Skipping the Additional Medicare Tax. Employers must withhold the extra 0.9 percent once wages pass $200,000, even though there is no employer match.

Related Terms

• Self-Employment Tax: the equivalent that a contractor pays in place of FICA.
• Common-Law Employee: the worker type FICA applies to.

Omnivoo EOR is India-only, so US FICA does not apply to Omnivoo-employed staff. For US companies engaging contractors abroad, Omnivoo Contract Management keeps each worker correctly classified so the right tax regime, FICA for employees or self-employment tax for contractors, is applied to the relationship.