It’s important to understand the details of FICA – Federal Insurance Contributions Act and how much you are contributing to federal payroll taxes. This information can help you better plan for your financial future and make informed decisions when it comes to your taxes. Whether you’re self-employed or employed, understanding FICA can help you stay on top of your financial obligations.
An estimated 171 million workers are covered under Social Security.
What is FICA? How much you contribute to federal payroll taxes.
Tax season is upon us, but the road ahead doesn’t have to feel daunting. We’re breaking down the terms, forms and deadlines you need to know to responsibly file your taxes in 2023 – starting with FICA. FICA helps fund both Social Security and Medicare programs, which provide benefits for retirees, the disabled, and children.
Confused or confounded about the money taken out of your paycheck every week? Wondering what Social Security and Medicare taxes have to do with you? Here’s what to know about the U.S. federal tax.
What is FICA?
FICA stands for Federal Insurance Contributions Act; it’s the federal payroll tax. The Federal Insurance Contributions Act (FICA) is a U.S. payroll tax deducted to fund the Social Security and Medicare programs. Your nine-digit number helps Social Security accurately record your covered wages or self-employment. As you work and pay FICA taxes, you earn credits for Social Security benefits.
A total of 7.65% of your gross wages goes to federal taxes. Your employer matches these percentages:
- 6.2% to Social Security
- 1.45% to Medicare
Individuals with earned income of more than $200,000 ($250,000 for married couples filing jointly) pay an additional 0.9% in Medicare taxes. These taxes from your paycheck fund Social Security and Medicare programs, including retirement, disability, survivors’ and children’s benefits.
Is FICA tax the same as Social Security?
No, FICA and Social Security taxes are not the same, but they’re related. Social Security taxes are the 6.2% taken out of your paycheck each month (up to $160,300, the 2023 taxable maximum) while FICA refers to the combination of Social Security and Medicare taxes.
Who is exempt from FICA?
Certain wages are exempt from FICA taxes. For example, FICA taxes do not apply to services performed by employed students, the Internal Revenue Service says. Organizations are deemed a “school, college or university” if their function and the student’s relationship with the employer are primarily educational.
A Social Security card wedged between U.S. tax forms, with eyeglasses and a twenty-dollar bill set atop the tax forms. According to the IRS, nonresidents are generally liable for Social Security and Medicare taxes. These groups of people are exempt from FICA taxes:
- A-visa holders: Employees whose salaries are paid in their official capacity as foreign government employees
- D-visa holders: Crew members of a ship or aircraft whose employer or vessel is foreign or if the services are performed outside of the U.S.
- F-visa, J-visa, M-visa, Q-visa holders: Employees who perform services in the U.S. allowed by the United States Citizenship and Immigration Services, like on-campus student employment, certain off-campus student employment, on-campus employment or practical training student employment
- G-visa holders: Employees of international organizations who are paid in their official capacity in an international organization
- H-visas: Nonimmigrant residents of the Philippines who perform services in Guam or nonimmigrants performing temporary agricultural labor
Other paid wages exempt from Social Security and Medicare taxes include compensation to:
- Duly ordained, commissioned or licensed ministers of churches
- Children under the age of 18 employed by their parents
- Student nurses if paid under certain conditions
Self-employed individuals are not exempt from Social Security and Medicare taxes, but they do have a different, higher rate known as “self-employment tax” because there is no employer match. The total tax rate is 15.3%, broken down into two parts:
- 12.4% to Social Security
- 2.9% to Medicare
Do I get my FICA tax back?
You can get a refund if your Social Security taxes were withheld in error from exempt pay. You should get a refund in full from your employer, otherwise, you can file a claim with the IRS.
Think about FICA like this
The money you pay in taxes is not held in a personal account for you to use when you get benefits. Today’s workers help pay for current retirees’ and other beneficiaries’ benefits. Any unused money goes to the Social Security trust funds to help secure today and tomorrow for you and your family.
Create your personal my Social Security account today
A free and secure my Social Security account provides personalized tools for everyone, whether you receive benefits or not. You can use your account to request a replacement Social Security card, check the status of an application, estimate future benefits, or manage the benefits you already receive.
Read more at The United States Social Security Administration | SSA
