What FICA is and why the same wage is taxed twice
FICA stands for the Federal Insurance Contributions Act, and it imposes two separate taxes on wages. Old-Age, Survivors, and Disability Insurance — what everyone calls Social Security — takes 6.2% from the employee under IRC §3101(a) and an identical 6.2% from the employer under §3111(a). Hospital Insurance, or Medicare, takes 1.45% from each side. Below the wage base the total charge on a dollar of wages is therefore 15.3%, split evenly on paper.
The split is a legal fiction with real consequences. Economists have long argued that the employer half is ultimately borne by the worker through lower wages, which is exactly why a self-employed person pays both halves as self-employment tax on Schedule SE — the self-employment tax calculator works that version. What the split does change is cash flow and visibility: your stub shows 7.65%, and the other 7.65% never appears anywhere you can see it.
The two taxes behave completely differently at the top. Social Security is capped: once your wages with an employer reach the annual wage base, the 6.2% stops for the rest of the year, because Social Security benefits are also capped and the tax tracks the benefit formula. Medicare has no ceiling at all — the cap was repealed effective 1994 — and since 2013 an extra 0.9% applies to high wages under §3101(b)(2). That asymmetry produces the effect most high earners notice: a mid-year jump in take-home pay when Social Security switches off, followed by a small drop when the additional Medicare tax switches on.
Which wages count, and where the cap and the surtax bite
Start with FICA wages, which are not the same as federal income tax wages. The distinction trips up more payroll runs than any rate question.
Section 125 cafeteria plan deductions reduce FICA wages. Employee-paid health, dental and vision premiums run through a cafeteria plan, health FSA and dependent care FSA contributions, and HSA contributions made by payroll deduction are all exempt from Social Security and Medicare as well as from income tax. That exemption is the reason payroll-deducted HSA funding beats writing a personal cheque to the same account: the personal contribution is deductible for income tax but still bears the full 7.65%.
Retirement deferrals do not. A traditional 401(k), 403(b) or 457(b) deferral reduces taxable wages for income tax withholding but remains fully subject to FICA. So does a Roth deferral, which reduces nothing. If a paycheck's income tax wages and FICA wages differ, an elective deferral is nearly always the reason.
Then apply the cap. Compare year-to-date FICA wages with this employer against the wage base. The Social Security tax applies only to the smaller of this period's wages and the room left under the base, which is why the crossover paycheck is taxed partly at 7.65% and partly at 1.45%.
Finally, the surtax. An employer must begin withholding the additional 0.9% Medicare tax once it has paid you more than $200,000 in a calendar year, and it applies that trigger without regard to your filing status because it cannot know your spouse's wages. Your actual liability is determined on Form 8959 against the threshold for your filing status: $250,000 married filing jointly, $125,000 married filing separately, $200,000 otherwise. Any mismatch is settled on the return.
Worked example: the paycheck that crosses the wage base
You are paid $10,000 semimonthly, have no section 125 deductions, and your year-to-date FICA wages stand at $174,000. The 2025 wage base is $176,100.
- FICA wages for the period. 10,000 − 0 = $10,000.00.
- Social Security room remaining. 176,100 − 174,000 = $2,100.00.
- Social Security taxable this period. min(10,000, 2,100) = $2,100.00.
- Employee Social Security. 2,100 × 0.062 = $130.20. On the previous paycheck it was 10,000 × 0.062 = $620.00, so your withholding falls by $489.80.
- Employee Medicare. 10,000 × 0.0145 = $145.00, unchanged, because Medicare has no cap.
- Additional Medicare. Year-to-date wages reach 174,000 + 10,000 = $184,000, still below the $200,000 trigger, so nothing applies yet.
- Total withheld. 130.20 + 145.00 = $275.20, against $765.00 on the previous check.
- Employer side. The same $275.20. The combined cost of this paycheck's FICA is $550.40.
Two paychecks later, year-to-date wages reach $204,000 and the surtax starts. On a $20,000 check taking you from $195,000 to $215,000, the surtax base is the part above the trigger: 215,000 − 200,000 = $15,000, and 15,000 × 0.009 = $135.00. Social Security is now zero because you passed the base, Medicare is 20,000 × 0.0145 = $290.00, and the employee total is $425.00 while the employer pays only $290.00 — the first time in the year the two sides differ.
FICA rates, caps and thresholds
| Component | Employee rate | Employer rate | Wage limit |
|---|---|---|---|
| Social Security (OASDI) | 6.2% | 6.2% | Annual wage base ($176,100 for 2025) |
| Medicare (HI) | 1.45% | 1.45% | No limit |
| Additional Medicare | 0.9% | none | Wages above $200,000 (withholding trigger) |
| Combined below the base | 7.65% | 7.65% | — |
| Combined above the base | 1.45% | 1.45% | — |
| Combined above $200,000 | 2.35% | 1.45% | — |
Filing-status thresholds for the additional Medicare tax liability are $250,000 married filing jointly, $125,000 married filing separately and $200,000 for all others. These are statutory and are not indexed for inflation.
How to read the numbers on your stub
Check the arithmetic in the order the calculator does it. Social Security should equal exactly 6.2% of the period's FICA wages until the year-to-date figure approaches the base; Medicare should equal exactly 1.45% of the same number. If either fails, the cause is almost always the wage figure rather than the rate.
The most common discrepancy is that your gross pay and your FICA wages differ. A 401(k) deferral leaves them equal for FICA but not for income tax; a health premium does the reverse. Imputed income runs the other way and increases FICA wages above what you were actually paid — employer-provided group-term life cover above $50,000, personal use of a company car, and taxable gift cards all add to FICA wages without adding to cash, which is why they can make Medicare tax exceed 1.45% of your visible gross. The group-term life imputed income calculator quantifies that specific item.
If you hold two jobs, each employer applies the wage base independently and neither knows about the other. Between them they can withhold Social Security on more than one wage base of earnings. That excess is not lost: you claim it as a refundable credit on the Form 1040 line for excess social security tax withheld. Note the asymmetry — the employers' own 6.2% payments are not refunded, only yours.
Above the wage base your marginal payroll cost drops sharply, from 7.65% to 1.45% on the employee side, then rises to 2.35% past $200,000. That step matters for anyone deciding when in the year to take a bonus, and it is one of the few genuinely large discontinuities in the US tax code. It is also why the true marginal rate on a high salary is not simply the income tax bracket; to see federal withholding, FICA and state tax stacked together on the same paycheck, use the gross to net paycheck calculator.
Mistakes that produce a wrong FICA figure
- Reducing FICA wages by a 401(k) deferral. Elective deferrals reduce income tax wages only. This is the single most frequent payroll error and it understates both the employee's and the employer's tax.
- Restarting the wage base after a job change. Each employer correctly starts a new base, so a mid-year mover can be over-withheld across the two. Claim the excess on the return rather than asking the second employer to stop.
- Matching the additional Medicare tax. There is no employer share of the 0.9%. An employer that matches it has overpaid its own tax.
- Applying the filing-status threshold in payroll. Withholding always starts at $200,000 of wages from that employer. Payroll may not use $250,000 for a married employee, even on request.
- Treating a bonus as exempt. Bonuses, commissions, severance and most taxable fringe benefits are all FICA wages, even where a flat 22% supplemental rate is used for income tax.
- Forgetting that the base is annual, not per job or per period. A single large payment does not create extra Social Security tax beyond the base.
- Ignoring the household employee and statutory employee rules. Different thresholds and coverage rules apply, and small household payrolls frequently miss them entirely.
Some wages are outside FICA altogether
Several categories are excluded by statute rather than by rate. Wages paid to a child under 18 employed by a parent's unincorporated business are exempt from Social Security and Medicare under §3121(b)(3). Certain student employees of the school they attend are exempt. Some state and local government employees covered by a qualifying public pension plan participate in Medicare only. Members of specified religious groups may claim exemption on Form 4029. If a stub shows Medicare tax but no Social Security tax on a normal wage level, one of these coverage rules is usually the explanation rather than an error.
Where FICA sits among the payroll taxes
FICA is only one of the taxes a paycheck triggers. Federal income tax withholding is a separate, W-4-driven calculation with its own definition of taxable wages, described in Publication 15-T and handled by the federal income tax withholding calculator. Federal and state unemployment taxes are employer-only charges on much smaller wage bases, which the FUTA and SUTA calculator covers. Several states add their own disability or paid family leave contributions on top.
The wage base is announced by the Social Security Administration each October, indexed to the national average wage index rather than to consumer prices. It has risen in most years since 1975, occasionally staying flat when the wage index did not increase. Because the index tracks wages rather than prices, the base tends to rise slightly faster than inflation in a strong labour market, which gradually pulls more earnings into the 6.2% charge.
For an employer, the useful framing is that FICA is a fixed 7.65% surcharge on payroll below the base, entirely predictable and entirely unavoidable, which belongs in any cost-per-employee calculation alongside benefits and workers compensation. For an employee, the useful framing is that the 6.2% buys a specific, capped benefit: the Social Security benefit formula uses your highest 35 years of indexed earnings, and earnings above the base contribute neither tax nor benefit. Medicare's 1.45% buys the same coverage regardless of how much you pay, which is why it is uncapped and why the 0.9% surtax was added as a straightforwardly progressive revenue measure rather than as a contribution to a benefit.