Your tax liability is largely determined by your tax withholdings throughout the year and the tax credits and deductions you’re eligible for. A significant portion of your tax withholdings go towards your FICA taxes.
Below we’ll break down what FICA taxes are, how they work, and how they impact your tax liability.
What is FICA?
The Federal Insurance Contributions Act (FICA) is a U.S. federal payroll tax. FICA is a federal law that requires employers to withhold a certain percent of each employee’s paycheck to go toward funding Social Security and Medicare programs. These programs help provide benefits for retirees, the disabled, and children.
How FICA Taxes Work
FICA taxes are a combination of Social Security and Medicare taxes that total 15.3% of your gross wages. Half of the contribution comes directly from the employee’s paycheck, with the other half matched by the employer.
Employees pay:
- 6.2% of your gross wages to Social Security (on the first $147,000 in earnings)
- 1.45% of your gross wages to Medicare (on the first $200,000 of wages)
Your employer matches these contributions for a total of 15.3%. Employees pay an additional 0.9% Medicare tax on wages over a threshold amount ($200,000 for individuals, and $250,000 for married couples filing jointly). Employers do not match the additional Medicare taxes.
Working taxpayers’ contributions help support current benefits while building funds they will be eligible for in the future (usually upon retirement).
Self-employed individuals
If you are self-employed, you are liable for the entire FICA tax (since you don’t have an employer). You can include your FICA taxes in your quarterly estimated tax payments.
Self-employed individuals pay:
- 12.4% Social Security tax
- 2.9% Medicare tax
However, you do get to deduct half of the FICA tax when you file your tax return. Since the self-employment tax deduction is an above-the-line deduction, you can apply it whether you’re taking the standard deduction or itemizing.
What is Tax Withholding?
A withholding tax is the amount of wages withheld from your paycheck to pay the government. FICA taxes are a type of withholding tax. Other withholding taxes include federal and state income taxes.
The amount withheld from your paycheck for FICA is determined by the federal government at the percentages noted above. For other tax withholdings, the amount depends on how much you earn and how you fill out your IRS form W-4.
Wage Base Limits
The Social Security program sets limits on the amount of earnings subject to taxes in a given year. These are called wage base limits or are commonly referred to as the taxable maximum.
This means that anyone paying Social Security taxes as part of their FICA tax will be exempt from paying past a certain income threshold. The limit changes each year. For 2022, the wage limit is $147,000.
For 2023, the wage limit is $160,200. So, the maximum Social Security tax will be $9,932.40. Past the wage limit, employees and employers no longer have to withhold tax for Social Security.
Based on the updated wage base limits for 2023, an employer must withhold:
- 6.2% Social Security tax on the first $160,200 of employee wages
- 1.45% of Medicare tax on the first $200,000 of employee wages
- 2.35% Medicare tax on all employee wages in excess of $200,000
There is no wage base limit for Medicare taxes.
What If You Have Multiple Jobs?
If you work two or more W-2 jobs, you will have taxes withheld from all of those paychecks—even if the combined withholding exceeds the taxable maximum. You can use IRS Form 1040 to claim Social Security overpayment and get a refund when you file your return.
Who Is Exempt From FICA?
In general, most employees and employers will pay FICA taxes, including resident aliens and some non-resident aliens. However, there are some exemptions, including:
A-visa holders: Employees of foreign governments working in an official capacity.
F-visa, J-visa, M-visa, Q-visa holders: This includes international students, teachers, trainees, summer camp workers, au pairs, researchers, and other aliens temporarily present in the U.S.
Other exemptions include children under 18 employed by their parents, crew members of a ship or aircraft if the services are performed outside of the U.S. or the employer or vessel is foreign, as well as nonimmigrant residents of the Philippines working in Guam.
Simplify Your Taxes With ezTaxReturn
For most people, FICA taxes are mandatory. But the good news is that you’ll see at least some of that money again when you retire.
While we can’t get you out of paying your FICA taxes, ezTaxReturn can help you navigate your taxes to ensure the biggest possible return. We’ll walk you through the filing process step-by-step so you never miss a tax credit or deduction you can claim.
If you have a simple return, you can file taxes free with ezTaxReturn.
