What is FICA Tax and How is it Calculated?

Personal Finance February 07, 2017 Print Friendly and PDF

FICA is an acronym for "Federal Insurance Contributions Act." FICA tax is the money that is taken out of workers' paychecks to pay older Americans their Social Security retirement and Medicare (Hospital Insurance) benefits. It is a mandatory payroll deduction. Two separate taxes are added together and treated as one amount that is referred to as "payroll taxes" or FICA. These two taxes, individually, pay for both Social Security retirement benefits and Medicare health insurance.

FICA tax deductions also provide benefits to widows and widowers, children who have lost working parents, and disabled workers who qualify for benefits. The amount paid in payroll taxes throughout one's working career is linked to the Social Security benefit that one receives as a retiree or one's family receives if a covered worker dies. FICA tax is paid by both workers and their employers.

 FICA tax is typically 7.65% of earnings up to $127,200 (2017 figure). Employees pay 6.2% of their earnings for Social Security retirement benefits and their employer pays 6.2% for a total of 12.4% of a worker's income. An additional 1.45% tax is also collected to fund Medicare benefits and this, too, is matched by employers.

Self-employed persons pay both halves of both taxes for a total of 15.3% of their net business earnings. These taxes are reported on Schedule SE with their income tax returns.Self-employed persons can deduct the employer-equivalent portion of self-employment tax in figuring their adjusted gross income (AGI).

We're collecting feedback on FAQs. Please complete this quick survey to help with our continual improvements.

Connect with us

  • Twitter
  • Facebook
  • YouTube
  • Pinterest

Welcome

This is where you can find research-based information from America's land-grant universities enabled by eXtension.org

LOCATE

USDA / NIFA

This work is supported by the USDA National Institute of Food and Agriculture, New Technologies for Ag Extension project.