The Federal Insurance Contributions Act (FICA) mandates two primary taxes: Social Security tax and Medicare tax. Social Security tax, also referred to as old-age, survivors, and disability insurance tax, and Medicare tax, also known as hospital insurance tax, are vital for funding key government programs. Understanding these taxes is crucial for both employers and employees.
Understanding FICA Taxes: Social Security and Medicare
FICA taxes are split into two categories, funding social security and medicare, that affect both employers and employees. Here’s a breakdown of the components and applicable rates:
- Social Security Tax: Funds old-age, survivors, and disability insurance.
- Medicare Tax: Funds hospital insurance.
Current Social Security and Medicare Tax Rates (2024)
The tax rates for Social Security and Medicare are different and are split between the employer and the employee.
- Social Security: The current tax rate is 6.2% for employers and 6.2% for employees, totaling 12.4%. This tax supports retirement, disability, and survivors benefits.
- Medicare: The current tax rate is 1.45% for employers and 1.45% for employees, totaling 2.9%. This tax helps fund the Medicare program, providing health insurance for seniors and those with disabilities.
Refer to Publication 15 (Circular E), Employer’s Tax Guide for more detailed information and updated rates.
Additional Medicare Tax
In addition to the standard Medicare tax, an Additional Medicare Tax of 0.9% applies to high-income earners. This tax is only paid by the employee, not matched by the employer.
- Threshold: The Additional Medicare Tax applies to an individual’s Medicare wages exceeding $200,000 in a calendar year, regardless of filing status.
- Employer Responsibility: Employers must withhold this additional tax from wages exceeding $200,000. Withholding begins in the pay period when wages surpass this threshold and continues until the end of the calendar year.
For further details, consult the Instructions for Form 8959 and the Questions and answers for the Additional Medicare Tax.
Social Security Wage Base Limit (2025)
A crucial aspect of Social Security tax is the wage base limit. This limit defines the maximum amount of earnings subject to Social Security tax in a given year.
- 2025 Wage Base Limit: For earnings in 2025, the Social Security wage base limit is $176,100. This means that any wages earned above this amount are not subject to Social Security tax.
- Medicare Tax: It is important to note that there is no wage base limit for Medicare tax. All covered wages are subject to Medicare tax, regardless of the amount.
Refer to the “What’s New” section in Publication 15 for the most up-to-date wage limit for Social Security wages.
Key Takeaways: Social Security Tax
Understanding Social Security and Medicare taxes is essential for accurate payroll processing and financial planning. Remember:
- FICA taxes include Social Security and Medicare taxes.
- Social Security and Medicare taxes are split equally between employers and employees.
- Additional Medicare Tax applies to high-income earners.
- The Social Security wage base limit restricts the amount of earnings subject to the tax each year.
- Stay informed about current tax rates and wage base limits by consulting official IRS publications.
By staying informed and proactive, you can confidently navigate the complexities of Social Security tax.
