What is FICA?

FICA stands for the Federal Insurance Contribution Act, which outlines the required income tax withholdings related to social security and Medicare. Employers are required to withhold this tax from employee paychecks on behalf of the employee and submit them to the IRS. Unlike most payroll taxes, employers also have a separate employer FICA tax responsibility that must be paid to the IRS as well.

FICA Amounts

As of 2016, the tax amounts related to FICA are as follows:

• Social security tax (employee portion): 6.2% of the employee’s pay, for employee salaries anywhere up to $118,500. Once the employee makes more than $118,500, no additional tax is withheld from the portion above that level. This cap is valid as of this writing (beginning of 2016). The cap increased to this amount in 2015.
• Medicare tax (employee portion): 1.45% of the employee’s pay, without a cap.
• Additional Medicare tax (employee portion): 0.9% of an employee’s pay that exceeds $200,000. This is only withheld on the portion of wages above that threshold.
• Social security tax (employer portion): 6.2% of the employee’s pay, for employee salaries anywhere up to $118,500. This is paid in addition to the employee portion. Thus, the total social security taxes paid by the employee and employer combined equals 12.4% of income, up to the maximum income of $118,500.
• Medicare tax (employer portion): 1.45% of the employee’s pay, without a cap. Just like the social security tax, this is in addition to the amount paid by the employee. The total combined Medicare tax paid is 2.9% of the employee’s income. (before the additional Medicare tax).
• Additional Medicare tax (employer portion): this portion does not apply to the employer. The employer only has the obligation to withhold the employee portion on behalf of the employees making more than $200,000—but the employer does not have a separate employer portion to pay.

Risk of Over- or Under-Withholding

From the employee’s perspective, the employee may end up overpaying or underpaying these taxes in several scenarios. Here are a few examples:

• An employee may have too much social security tax withheld if he or she has income from additional sources in which the taxes are also being withheld—the combination of which exceeds the maximum income threshold. In this scenario, the employee may reach the maximum income level for the social security tax withholding ($118,500) through their combined income, yet each individual employer still has the obligation to withhold the tax on the employee’s behalf until they’ve surpassed the threshold with that employer. As such, employees who have overpaid this tax due to this circumstance may be eligible for a partial refund in these cases.
• Another scenario of overpayment can occur with the additional Medicare tax. In some cases, the employee’s income will exceed $200,000 at a single employer, but he or she will not owe the tax due to other circumstances, such as when married and filing jointly and the combined income does not exceed $250,000. ($250,000 is the threshold for the tax to kick in for a couple who files a joint tax return.) In this case, the employer still has an obligation to withhold it, and if the employees end up overpaying their tax obligations, they will simply be refunded after filing taxes for the year.
• Conversely, the employee may owe the additional Medicare tax and not have an employer withhold it—resulting in an underpayment of this tax if the employee does not take steps to pay it separately. This can occur if the employee has multiple employers and his or her income exceeds $200,000 in total—but is less than that threshold at each individual employer—t no employer will have the obligation to withhold this tax, but the employee will still owe it.

Employers should be aware of these scenarios as employees may come to you with questions or come to you with requests for withholding changes.

Notes for Self-Employed Individuals and Independent Contractors

For all of these FICA tax obligations, self-employed individuals must pay both the employee and the employer portion. This fact is relevant for employers because it underscores how critical it is to get employee classification correct. If someone was wrongly designated as an independent contractor instead of as employee, the employer will have missed its obligation to pay this tax. If misclassified and discovered, the employer could later be liable for the employer portion of these taxes (among other obligations).

*This article does not constitute legal advice. Always consult legal counsel with specific questions.

About Bridget Miller:

Bridget Miller is a business consultant with a specialized MBA in International Economics and Management, which provides a unique perspective on business challenges. She’s been working in the corporate world for over 15 years, with experience across multiple diverse departments including HR, sales, marketing, IT, commercial development, and training.