Federal Insurance Contributions Act (FICA) taxes are the taxes on wages that fund Social Security and Medicare. The Social Security taxes and Medicare taxes are separate and operate differently. Social Security taxes are 12.4% of an employee’s wages up to a certain amount each year which currently stands at $142,800 as of 2021. The tax is split with the employee and employer each paying 6.2%. Medicare taxes are 2.9% on all wages and split 1.45% between employer and employee, but if a person’s wages exceeds $200,000, an extra .9% Medicare tax applies for the employee to pay. If someone is self-employed, they must pay both the individual and employer parts of FICA taxes, but they can deduct the employer portions as business expenses. For a tool to calculate FICA taxes, click here.
[Last updated in July of 2021 by the Wex Definitions Team]