The Federal Insurance Contributions Act — the US payroll tax that funds Social Security (Old-Age, Survivors, Disability Insurance) and Medicare, paid jointly by employer and employee.
FICA — the Federal Insurance Contributions Act — is the US payroll-tax law (codified at 26 U.S.C. Subtitle C, Chapter 21) that funds two of the country's most consequential social-insurance programs: Social Security (officially OASDI: Old-Age, Survivors, and Disability Insurance) and Medicare. Every payroll run in the United States touches FICA, and getting the rates, wage bases, and deposit schedules right is non-negotiable for any employer.
The combined FICA tax rate is 15.3% of qualifying wages, split equally between employer and employee:
• Employee share: 7.65% withheld from each paycheck — comprised of 6.2% Social Security up to the annual wage base limit ($168,600 in 2024, $176,100 in 2025, increasing each year with national average wage index), plus 1.45% Medicare on ALL wages with no cap • Employer share: matching 7.65% — 6.2% Social Security on wages up to the wage base, plus 1.45% Medicare on all wages • Additional Medicare Tax: 0.9% additional withholding on employee wages above $200,000 in a calendar year ($250,000 if married filing jointly, $125,000 if married filing separately) — this is employee-only; employer does not match
The Social Security wage base resets each January and is the cumulative wage cap for that calendar year. An employee who hits $168,600 in November stops having Social Security withheld for the rest of December; Medicare keeps withholding. Two-job earners often hit the wage base via combined income and become eligible for a refund on their personal tax return — but each employer must withhold up to the cap based on the wages it pays.
Employers withhold the employee share each pay period and combine it with the matching employer share, then deposit the total with the IRS on the schedule mandated by the lookback rule. Most employers are 'monthly depositors' (deposit by the 15th of the following month) or 'semi-weekly depositors' (deposit Wednesdays for prior Wed-Fri pay dates and Fridays for prior Sat-Tue pay dates). Employers with $100,000+ in tax liability on any single day must deposit the next business day. The depositor schedule is determined by the prior 4-quarter lookback period (July 1 – June 30 prior year). New employers default to monthly until lookback data exists.
Reporting flows through quarterly Form 941 (for nearly all employers) or annual Form 944 (for very small employers with under $1,000 annual liability who get IRS approval). Form 941 reconciles wages, FICA, and federal income tax withheld for the quarter. Form W-2 reports each employee's annual Social Security wages (box 3), Social Security tax withheld (box 4), Medicare wages (box 5), and Medicare tax withheld (box 6) — these go to both the SSA and the employee for tax-return purposes.
Self-employed individuals pay both halves themselves as 'Self-Employment Tax' under SECA (Self-Employment Contributions Act) — 15.3% on net self-employment earnings up to the Social Security wage base, plus 2.9% Medicare above. They calculate it on Schedule SE attached to their Form 1040.
There are a handful of niche exemptions: foreign students on F-1, J-1, M-1, Q-1 visas working as authorized non-resident aliens are exempt from FICA on student-related employment; certain religious orders that have taken vows of poverty; some state and local government employees on grandfathered systems; and railroad workers under the parallel Railroad Retirement Tax Act. Outside these narrow exemptions, FICA applies to virtually all US wages.
FICA penalties for late deposits are severe and escalating: 2% for 1–5 days late, 5% for 6–15 days, 10% for 16+ days, and 15% if the IRS issues a notice and demand and the deposit isn't made within 10 days. Trust Fund Recovery Penalty under IRC §6672 makes the responsible person (often an officer or owner) personally liable for 100% of unpaid employee FICA — this is one of the few federal tax liabilities that pierces the corporate veil and cannot be discharged in personal bankruptcy. Cash-strapped employers who 'borrow' from withheld FICA face criminal charges under 26 U.S.C. §7202.
A common employer mistake is treating bonuses, commissions, severance, vacation payouts, and PTO cash-outs as 'not subject to FICA.' Wrong — these are all FICA wages. Equally common: forgetting that imputed income from group-term life insurance over $50,000, certain fringe benefits, and 401(k) contributions (employer match is NOT subject to FICA, but employee pre-tax deferrals ARE) follow specific rules. Cafeteria plan (Section 125) elections reduce FICA wages — pre-tax health, dental, vision, and FSA contributions all skip FICA on both sides, which is why cafeteria plans save employers ~7.65% on the elected amounts.
Modern payroll platforms automate FICA withholding (correct rates per employee per pay period), wage-base tracking (stops Social Security automatically at the cap), Additional Medicare Tax withholding (kicks in at the right earnings threshold), deposit scheduling (monthly vs semi-weekly correctly), and Form 941 / W-2 generation. The cost of getting any of this wrong is real — IRS penalties + interest + employer match shortfall can easily reach 5-figure exposure for a small employer running a year of incorrect FICA.
Each pay cycle our system withholds 7.65% FICA from employee wages, matches it on the employer side, and stops Social Security automatically when an employee hits the annual wage base. Additional Medicare Tax kicks in for our two highest earners after they cross $200,000 cumulative.
Peoplifi unifies HR, payroll, time tracking, and performance into one modern platform — so concepts like FICA stay handled, not stuck in spreadsheets.
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