What is FICA?
FICA stands for the Federal Insurance Contributions Act, a U.S. federal law that requires both employers and employees to contribute a portion of wages to fund Social Security and Medicare programs. FICA taxes are automatically withheld from employee paychecks and matched by employers, making it a shared responsibility that supports two essential public benefit systems.
If you’re an employer—especially a small business owner, understanding FICA is key to running compliant payroll and avoiding costly penalties. Failing to withhold or remit the correct FICA taxes can result in audits, fines, or even legal consequences.
What does FICA cover?
FICA taxes fund two major federal programs:
- Social Security – Provides retirement benefits, disability insurance, and survivor benefits for eligible workers and their families.
- Medicare – Offers health insurance for individuals aged 65 and older or those with certain disabilities.
Every paycheck contributes a portion of earnings to these programs, helping ensure long-term support for the workforce.
How much is the FICA tax rate?
As of 2025, the FICA tax rate is:
- Social Security Tax: 6.2% each for the employee and employer, totalling 12.4%. This applies to wages up to $176,100.
- Medicare Tax: 1.45% each for the employee and employer, totalling 2.9%. There is no wage base limit for Medicare tax.
Note: Additionally, employees earning over $200,000 annually are subject to an Additional Medicare Tax of 0.9%, withheld only from the employee portion.
Employers are responsible for matching the Social Security and Medicare taxes, resulting in a total contribution of 15.3% per employee.
Who has to pay FICA taxes?
Most employees and employers in the U.S. are required to pay FICA taxes. This includes:
- Full-time and part-time employees
- Seasonal workers
- Temporary employees
FICA taxes do not apply to:
- Independent contractors (who instead pay self-employment tax)
- Certain student employees
- Some religious organization members (with approved exemption)
As an employer, it’s your responsibility to correctly classify your workers and apply the appropriate tax obligations.
How FICA taxes are reported and paid
To stay compliant, you must:
- Withhold the employee’s share from each paycheck
- Match the employer’s share of Social Security and Medicare taxes
- Deposit the total amount with the IRS on a monthly or semi-weekly basis (depending on your deposit schedule)
- Report FICA taxes quarterly using Form 941 (Employer’s Quarterly Federal Tax Return)
- Provide W-2 forms to employees at year-end, summarizing FICA contributions
Proper recordkeeping is essential, especially if you're audited or your payroll processes are questioned.
Common mistakes employers make with FICA
Even with the best intentions, small business owners can run into trouble by:
- Misclassifying employees as contractors
- Forgetting to match the employer portion
- Missing deposit deadlines
- Failing to update payroll for wage-based changes
- Incorrectly calculating taxes on tips, bonuses, or commissions
Staying up to date with current rates and IRS guidance (like Publication 15 / Circular E) can help you avoid these issues.
How Homebase payroll simplifies FICA compliance
Manually calculating and submitting payroll taxes can be stressful, especially when FICA rules change year to year. Homebase payroll automates the entire process, ensuring your tax obligations are met accurately and on time.
With Homebase payroll, you can:
- Automatically calculate FICA taxes with each payroll run
- Remit tax payments to the IRS and state agencies on your behalf
- File quarterly and annual payroll forms (including Form 941 and W-2s)
- Stay compliant with wage caps and tax rate changes
- Maintain clear records for employees and auditors
Explore Homebase payroll to take the guesswork out of tax compliance and keep your business payroll running smoothly, every pay period.