FICA stands for the Federal Insurance Contributions Act. It refers to a mandatory federal payroll tax that funds two programs most Americans rely on: Social Security and Medicare. When you run payroll, you and your employees contribute to these programs.
As an employer, you’re responsible for withholding your employees’ share of FICA tax from their paychecks, matching that amount yourself, and sending the combined total to the Internal Revenue Service (IRS). As a result, getting the deposit deadlines and filing requirements is essential to keeping your business compliant.
Keep reading to learn what small business owners need to know about FICA taxes, including how the rates work, what you’re responsible for as an employer, how to calculate what you owe, and how to stay on top of your obligations year-round.
What is FICA tax?
FICA covers two separate taxes, one that funds the Medicare program and another that supports the Social Security program. In the next few sections, we’ll take a closer look at each of these taxes.
Note that the FICA tax is different from the federal income tax, even though both are deducted from an employee’s gross pay. While the federal income tax rate depends on filing status and income level, FICA applies at a fixed rate for most employees until certain income thresholds are met.
Medicare tax
This tax supports the Medicare program, which provides federal health insurance for Americans who are 65 and older. Both employers and employees must pay the Medicare tax.
The 2026 rate for the Medicare tax is set at 1.45% of an employee’s gross earnings (with no wage cap or wage base limit), and the employer portion matches that 1.45%. The employee’s portion is deducted from their wages while the employer pays their share directly.
High-earning employees also owe an additional Medicare tax of 0.9% on wages above a certain threshold:
$200,000 for single filers
$250,000 for married filing jointly
$125,000 for married filing separately
Employers are required to start withholding this additional amount once an employee’s wages exceed $200,000 in a calendar year (regardless of their filing status), but they don’t pay a matching share. The additional Medicare tax applies on top of the standard 1.45% Medicare tax rate, with no wage cap. Keep in mind that an employee’s actual tax liability at filing time may differ from what was withheld, since the final threshold depends on their total household income and filing status.
Social Security tax
The Social Security tax pays for federal retirement and disability benefits that support millions of Americans each year. Just like Medicare, both employers and employees must pay the Social Security tax.
The 2026 rate for the Social Security tax is 6.2% of an employee’s gross earnings up to $184,500 (this limit changes each year), with a matching 6.2% from the employer. The employee’s portion is deducted from their wages while the employer pays its share directly.
You may hear people using the terms FICA and Social Security interchangeably, but they aren’t exactly the same thing. Think of Social Security tax as one portion of the broader FICA tax.
Who has to pay FICA taxes?
Both employers and employees are required to pay FICA taxes.
Every pay period, you deduct your employees’ share of Social Security and Medicare taxes from their gross wages before they receive their paycheck. Then, you pay an equal amount out of your own pocket. So if an employee owes $80 in FICA taxes on a given paycheck, you owe another $80 on top of that.
As we’ll see in the next section, this tax obligation extends to self-employed people as well.
FICA tax for self-employed workers
Self-employed individuals (including sole proprietors, freelancers, and single-member LLC owners) don’t have an employer to split the FICA tax bill with. So, under the Self-Employed Contributions Act (SECA), they pay both the employer and employee portions of the Medicare and Social Security taxes.
The full 12.4% of the Social Security tax combined with the full 2.9% of the Medicare tax results in a self-employment tax rate of 15.3%. Just like employees, self-employed individuals are subject to the same annual wage base for Social Security. Once your income hits that threshold, you’re no longer required to pay into the Social Security program for the rest of the calendar year.
However, Medicare taxes continue with no cap on contributions. Self-employed people who meet the income threshold for the additional Medicare tax are responsible for those contributions as well.
The good news is that you can deduct half of the self-employment tax from your gross income when you file your income tax return. It doesn’t reduce the amount you owe in self-employment tax, but it does reduce your overall taxable income.
Are there any exemptions from FICA tax?
Most employees are subject to FICA tax, but there are a few situations where tax withholding doesn’t apply. Below are the most common ones small business employers are likely to encounter.
Note that FICA exemptions depend on your business structure, the worker’s visa status, and other factors. For more detailed information specific to your situation, check with your CPA or payroll provider.
Student workers
Students who are employed by the school, college, or university they attend may be exempt from FICA taxes, as long as their employment is tied to their studies. However, this doesn’t apply to students who work full-time or in positions unrelated to their enrollment.
Employee tips under $20 a month
If an employee receives less than $20 in tips in a calendar month, those tips are exempt from FICA withholding. Tips above that threshold are taxable and should be included in the employee’s gross wages for FICA purposes.
Employer contributions to qualified retirement accounts
When you contribute to a qualified retirement account on behalf of an employee—for example, through a 401(k) match—those contributions aren’t subject to FICA taxes. Any pre-tax contributions made by the employee, however, are still FICA-taxable.
Certain family employees
Family-owned businesses have some flexibility when it comes to FICA. If you employ your child under 18 at your sole proprietorship, their wages are generally exempt from FICA taxes regardless of the work they perform. Exemptions for spouses and parents are less straightforward and depend on your business structure, so confirm with a CPA whether that applies to your situation.
Nonresident aliens on certain visa types
Some nonresident alien employees—including those on F-1, J-1, M-1, or Q-1 visas working in the capacity that the visa was issued for—are exempt from FICA taxes. If you plan on hiring internationally or sponsoring employees on work visas, make sure to confirm their FICA status before running your first payroll as there are some limitations to these exemptions.
Independent contractors
Workers who are classified as independent contractors aren’t subject to FICA withholding by your business. As mentioned earlier, these people are responsible for paying both sides of the tax themselves through the self-employment tax.
But because worker classification is a highly scrutinized area of payroll compliance, misclassifying an employee as a contractor is a common and costly mistake. If you’re unsure how to classify someone, consider getting a second opinion before you run your first payroll for them.
How much is FICA tax?
In 2026, the total FICA tax rate is 7.65%, split evenly between employer and employee. Here’s a table that breaks down who pays what and how much:
2026 FICA tax rates | Employer rates | Employee rates | Income threshold |
Social Security tax | 6.2% | 6.2% | $184,500 |
Medicare tax | 1.45% | 1.45% | n/a |
Additional Medicare tax* | NA | 0.9% | Above $200,000 (single), $125,000 (married filing separately), $250,000 (married filing jointly) |
* See full description above to see which employees have to pay the additional Medicare tax.
Not sure how to apply these rates to your first payroll run? Gusto’s payroll software calculates and withholds FICA taxes automatically so you don’t have to do the math yourself.
How to calculate FICA taxes
Calculating FICA tax requires careful tracking of wage limits, deductions, and taxable income per pay period, which often makes this tricky for new employers. Read on to learn how to calculate FICA tax step by step.
For this example, we’ll use Jordan, a full-time employee earning $60,000 a year at a small business. He gets paid twice a month, which comes out to 24 pay periods and a gross pay of $2,500 per pay period.
1. Determine gross wages for the pay period
FICA taxes are calculated on gross wages before pre-tax deductions like health insurance premiums or 401(k) contributions are subtracted. FICA-taxable wages include:
Salary and hourly wages
Tips reported by employees
Bonuses and commissions
Taxable fringe benefits
In this example, Jordan’s gross wages for the pay period is $2,500.
2. Calculate the employee’s Social Security tax
Multiply gross wages by 6.2% to get the employee’s Social Security tax contribution.
$2,500 x 0.062 = $155
So, you’ll withhold $155 from Jordan’s paycheck for Social Security tax.
Remember that Social Security tax only applies up to the annual wage base, which is $184,500 in 2026. Once an employee’s cumulative wages for the calendar year hit that threshold, you stop withholding Social Security tax for them for the rest of the year.
At $60,000 annually, Jordan won’t hit the wage base this year, so this step is straightforward. For higher-earning employees, you’ll need to track cumulative wages each pay period and stop Social Security withholding once they cross the threshold.
3. Calculate the employee’s Medicare tax
Multiply gross wages by 1.45% to get the employee’s Medicare tax contribution.
$2,500 x 0.0145 = $36.25
You’ll withhold $36.25 from Jordan’s paycheck for Medicare tax.
Since Medicare has no cap, withholding continues year-round regardless of how much the employee earns. This includes any additional taxable wages like bonuses or commissions.
4. Add up the employee’s total FICA withholding
$155 (Social Security) + $36.25 (Medicare) = $191.25
For this pay period, you’ll need to withhold $191.25 from Jordan’s paycheck for FICA taxes.
5. Calculate your employer match
You owe the same amount as your employee for both Social Security and Medicare. So, your employer contribution for this pay period is also $191.25.
6. Check for the additional Medicare tax
If an employee’s wages exceed the income threshold for the additional Medicare tax, you’re required to withhold an additional 0.9% on all wages above that amount.
At $60,000, Jordan’s income is below that threshold, so no additional withholding applies here.
But for an unmarried employee earning $220,000 in a year, for example, you’d withhold 0.9% on the $20,000 above the threshold. This turns out to be an additional $180 in withholding for that employee for the year.
7. Calculate the total FICA payment due to the IRS
Add the employee’s contribution to your employer match to get your total FICA deposit for the pay period.
$191.25 + $191.25 = $382.50
So, your total FICA tax liability on Jordan’s wages for this pay period comes out to $382.50.
How to deposit and file FICA taxes
Knowing the rates, withholding employee taxes, and paying your share is only part of your FICA tax responsibility as an employer. Here’s what else you’re on the hook for.
Depositing FICA taxes
Withheld FICA taxes don’t sit in your business bank account until tax season. The IRS requires you to deposit them on a set schedule based on your total tax liability from the previous year, then sends the money to the Social Security Administration and Medicare trust funds.
Most small businesses fall into one of two deposit schedules:
Deposit schedule | Total tax liability during the lookback period | Due date |
Monthly | $50,000 or less | By the 15th of the following month |
Semi-weekly | Over $50,000 | The following Wednesday (if payday falls between Wednesday and Friday) or the following Friday (if your payday falls between Saturday and Tuesday) |
Your deposit schedule is determined by your tax liability during a four-quarter lookback period. The IRS looks at your total federal income tax withheld plus both the employer and employee shares of FICA deposited over the 12 months ending June 30 of the prior year.
New employers generally start out as monthly depositors since there’s no prior lookback period to reference. Your deposit schedule is updated every year on January 1 based on the most recent lookback period, so make sure to confirm your deposit schedule at the start of each year.
What happens when you miss a deposit?
The IRS enforces strict penalties on late FICA deposits, which are determined by how late the payment is:
One to five calendar days late: 2% penalty
Six to 15 calendar days late: 5% penalty
16 or more calendar days late: 10% penalty
More than 10 calendar days after the first IRS notice: 15% penalty
Note that the IRS also charges interest on penalties, which increases the amount you owe until the balance is paid in full. In serious cases, the IRS can also hold business owners personally liable for unpaid payroll taxes, even if their business structure offers limited liability protection.
Penalties can add up quickly, especially if you’re managing payroll for the first time and still getting used to the deposit schedule. If this is the case, you may want to consider setting up a payroll system that tracks and handles deposits automatically so you don’t miss any deadlines.
Reporting and filing FICA taxes
Beyond depositing FICA taxes, employers also file Form 941 each quarter (or Form 944 annually for very small employers) with the IRS. These forms report:
Total wages paid to employees
Federal income tax withheld
Employee and employer shares of Social Security and Medicare taxes
Any adjustments or credits
Form 941 is due by the last day of the month following the end of each quarter (so April 30, July 31, October 31, and January 31), while Form 944 is typically due by January 31. When a due date falls on a weekend or federal holiday, the forms must be submitted by the following business day instead.
Employers must also report each employee’s Social Security and Medicare contributions on their year-end Form W-2s.
If you use payroll software, these tax forms are typically generated and filed on your behalf automatically. If you handle payroll manually, make sure to add these due dates to your calendar now so you don’t miss them.
How payroll software simplifies FICA compliance for first-time business owners
FICA tax compliance involves a lot of moving parts. As a small business owner, you’re responsible for calculating the right withholding amounts for every employee each pay period, meeting deposit deadlines, filing quarterly returns, and updating your figures whenever the IRS changes a rate or wage base—all while running everything else that comes with owning a business.
Gusto’s payroll platform can shorten your admin to-do list by handling these obligations automatically. Every time you run payroll, our platform calculates and withholds the correct FICA amounts for each employee, matches your employer share, deposits the combined total with the IRS on the right schedule, and files Form 941 and other required forms on your behalf. And when tax rates or wage bases change year to year, Gusto updates its calculations automatically so you’re always working with current figures.
Unlike some payroll providers, Gusto includes automated payroll tax filing in every plan at no extra cost so you can focus on running and growing your business. Ready to take FICA compliance off your plate? Get started with Gusto.
Frequently Asked Questions about FICA tax
Are there any exemptions from FICA tax?
Yes, although they’re limited. Common exemptions include:
Student employees working at the school they’re enrolled at
Children under 18 working in a parent’s sole proprietorship
Certain nonresident aliens on F-1, J-1, M-1, or Q-1 visas
Employer contributions to qualified retirement accounts on behalf of employees
Employee tips totaling less than $20 in a calendar month
Exemptions depend on the situation, so check with your CPA or payroll provider before assuming one applies.
How is FICA tax different from federal income tax?
FICA taxes fund Social Security and Medicare, and are paid by both employers and employees at fixed rates. Federal income tax is a progressive tax that pays into the general federal budget and varies by employee based on their W-4 elections, filing status, and total earnings. As an employer, you withhold both from employee paychecks, but only FICA requires you to pay a matching share yourself.
Are bonuses subject to FICA tax?
Yes, bonuses are considered supplemental wages and are subject to FICA withholding the same way regular wages are. When you pay employees a bonus, you withhold Social Security and Medicare taxes from their share and pay your employer match on top of that.
Note that employees who have already hit the Social Security wage base for the year are exempt from this requirement. In these cases, Social Security tax doesn’t apply to the bonus. Medicare tax still does, since it has no wage cap.
Can you get a refund of FICA tax?
It depends on the situation. If you over-withheld FICA taxes from an employee’s pay, you can correct it by filing Form 941-X with the IRS. From there, you can either apply the overpayment as a credit toward your next return or request a direct refund from the IRS. Note that the adjustment process is faster, while the refund process takes longer since the IRS reviews the request before issuing payment.
Employees who worked multiple jobs in the same tax year and had more than the annual Social Security maximum withheld across all employers can claim a refund of the excess when they file their personal tax return. This process doesn’t require any action on your part as an employer.
