Determining taxes by yourself for the primary time? One of the vital vital varieties of taxes to grasp are FICA taxes (additionally known as payroll taxes). That is totally different than earnings tax, which you additionally pay, however this additionally comes out of your paycheck.
It is a tax you pay on each greenback of earned earnings (as much as $176,100 for a part of the tax), so it is very important perceive it. Your employer additionally pays FICA taxes on you for each greenback earned – so many employers depend FICA as a part of their complete compensation for an worker.
Right here’s what you might want to find out about FICA taxes, and the way they’ll have an effect on your backside line.
What Is FICA?
Federal Insurance coverage Contributions Act (FICA) taxes are a sort of tax known as payroll taxes. They embrace a Social Safety tax, and a Medicare tax that are meant to fund the Social Safety and Medicare packages in the US.
FICA taxes are paid along with different varieties of taxes such because the Federal earnings tax or your State earnings tax.
Who Pays FICA Tax?
By regulation, FICA tax funds are cut up between an employer and the worker. Every pays an equal share of the taxes.
In case you work a typical job (the place your employer provides you a W-2 on the finish of the 12 months), your employer will robotically deduct your share of the FICA taxes out of your paycheck. It should ship that share on to the IRS for you. Moreover, your employer pays its half of the tax on to the IRS.
Self-employed folks (together with side-hustlers) should pay each the employer aspect and the worker aspect of the FICA tax.
What Is The Tax Charge?
Proper now, the FICA tax is ready at 6.2% for Social Safety and 1.45% for Medicare. Each the worker and the employer should pay the 6.2% Social Safety tax and the 1.45% Medicare tax. Collectively the FICA tax is 15.3% of all wages that you just earn.
The social safety tax is paid solely on the primary $176,100 of your earnings in 2025. Meaning if you happen to earn $180,000, you gained’t pay the 6.2% tax on the final $3,900 of your earnings. Your employer doesn’t should pay its half of the Social Safety tax on the final $3,900 of your earnings both. That’s an incredible tax break for top earnings earners.
Nonetheless, the tax break doesn’t lengthen to the 1.45% Medicare portion of the tax. Excessive earnings earners should pay an extra 0.9% Medicare tax if their earnings exceeds sure thresholds.
In 2025, the thresholds had been:
- $200,000 for a Single Filer (or Head of Family)
- $125,000 for married submitting individually
- $250,000 for married submitting collectively
Is All Revenue Topic To FICA Taxes?
FICA taxes are paid on all earned earnings (as much as the $176,100 wage base talked about earlier). Revenue from hire, sure varieties of royalties, capital good points and dividends are usually not topic to FICA taxes.
Nonetheless, it’s important to pay the tax on all earned earnings together with your wage, ideas, commissions and anything that counts as wages. Contributing cash to your 401(ok), and different deductions help you keep away from Federal earnings taxes, however you’ll nonetheless should pay payroll taxes (FICA) on that wage earnings.
There are only some methods to keep away from paying FICA on wage earnings. First, you’ll be able to contribute to an HSA. It’s also possible to contribute to a Versatile Financial savings Account (FSA) for childcare, medical care or each. In case you pay official enterprise bills for a enterprise you personal, you would not have to pay FICA taxes for these bills.
The one different exceptions to this rule embrace individuals who earn earnings in distinctive circumstances.
Some college students, particularly these working as Analysis Assistants or Educating Assistants won’t should pay FICA on their stipends. Likewise, if you happen to work for a international employer, and you reside exterior of the US, you don’t should pay FICA on that earnings. Lastly, pastors and different ministers who elect to take action can decide to not pay payroll taxes on their ministry earnings.
How Do I Pay These If I am Self-Employed?
If you’re self-employed (together with individuals who run a enterprise on the aspect), you have to to pay your payroll taxes your self as a part of your quarterly tax estimates. You may both do that by payroll (if you happen to’re an S Corp), otherwise you do that in your Schedule C at tax time.
Since self-employed folks should pay either side of the payroll tax, the FICA tax burden is 15.3% of all earnings you earn as a self-employed particular person. On high of that, you’ll have to pay your Federal and state earnings taxes.
What If I Overpaid?
More often than not, overpaying FICA taxes isn’t an issue when you may have just one employer.
Nonetheless, if you happen to earned $100,000 out of your essential job, and $75,000 from a second job or aspect enterprise, you might by chance overpay your FICA taxes.
To obtain a refund, you have to to say a refund on line 69 of your 1040. Each main tax submitting software program and a superb accountant will catch this challenge for you. The software program (or the accountant) will make sure that you request a refund for the suitable quantity in your taxes.