Key Takeaways
- Components of FICA: The FICA tax comprises two main components: Social Security tax and Medicare tax. Social Security tax is currently 6.2% of wages up to the annual wage limit, while Medicare tax is 1.45% on all earnings with an additional 0.9% for high earners.
- The “EE” In FICA: FICA EE tax refers to the employee portion of the Federal Insurance Contributions Act (FICA) tax. It is deducted directly from an employee's paycheck and funds essential federal programs like Social Security and Medicare. This tax is mandatory for most U.S. workers.
- Who Pays the FICA Tax: Both employees and employers make contributions. The "EE" in FICA EE specifically refers to the employee's share, while employers match this amount. For self-employed people, they have to pay both portions through the Self-Employment Contributions Act (SECA) tax.
- Impact on Take-Home Pay: Since the FICA tax is deducted from gross wages, it directly reduces an employee's take-home pay. To financially plan around this deduction, you need to understand how these contributions work and when they’re made.
- Exceptions and Special Cases: Certain groups, such as specific government employees, some non-resident aliens, and people affiliated with certain select religions, may be exempt from FICA tax contributions. Student workers aren’t fully exempt, but they often have special considerations.
Whether you’re an employee or an employer, you’re probably used to seeing an endless list of acronyms next to the many deductions on the money you take home at the end of the year. Out of these endless acronyms, FICA is probably one of the most significant because of its implications, so let’s go over the basics first.
The Federal Insurance Contributions Act (FICA) is a critical part of the U.S. tax system, as the taxes collected through it are responsible for funding Social Security and Medicare programs that provide benefits to millions of Americans. If you’re an employee, you’re probably used to seeing it as the “FICA EE tax”, with the EE referring specifically to the employee’s portion of this tax.
Since you’re paying into it today to take advantage of it in the future, it’s important that you understand how it works, its components, and its implications on your paycheck so you can make proper financial planning around it. Can you avoid it entirely? Chances are that you can’t, so read along and find out how to make this a better deal for you!
What Is the FICA EE Tax?
The Federal Insurance Contributions Act (FICA) is a payroll tax that both employees and employers are bound to pay to the IRS, and it’s made up of two main components: Social Security, and Medicare Tax.
As we mentioned, the FICA EE tax is the contribution that employees are responsible for, while employers have to match these contributions. The amount withheld from an employee’s wages then goes on to fund those programs, and it is a legal requirement for most workers in the United States. There really is no “opting out” of this tax as it is automatically deducted from your paycheck by your employer (and they have to, or be penalized themselves).
Is FICA Different From Income Tax?
Yes, they are, but they’re considered to go hand in hand anyway. While both essentially come out of your wages, the differences lie in where they originate and how they’re used. On one hand, income taxes are pretty self-explanatory; they’re taxes levied on your income at the federal (and sometimes state) level to fund all sorts of government initiatives, and the more money you make, the more you will pay on income tax.
On the other hand, FICA taxes (and FICA EE taxes specifically) are exclusively levied by the federal government, and are used only to fund social security and medicare programs. Also, FICA is a flat tax, so the rates won’t change depending on your income level like income taxes do.
Breakdown of FICA EE Tax Components
As of 2025, this is the tax rate breakdown for both components of the FICA tax (Social Security and Medicare).
Social Security Tax
- Rate: 6.2% of your wages
- Wage Base Limit: Applies only to earnings up to $160,200 (as of 2023)
- Purpose: Funds retirement, disability, and survivor benefits
Medicare Tax
- Rate: 1.45% on all wages
- Additional Medicare Tax: 0.9% on earnings over $200,000 (single filers) or $250,000 (married filing jointly)
- Purpose: Supports hospital insurance for individuals aged 65 and older, and for certain younger people with disabilities
How the FICA Tax Affects Your Paycheck
FICA EE tax reduces your gross income, affecting your take-home pay. For example, if you earn $50,000 annually:
- Social Security tax = $3,100 (6.2%)
- Medicare tax = $725 (1.45%)
- Total FICA EE tax = $3,825
This deduction happens before federal and state income taxes are calculated, which means it’s a significant part of your payroll taxes.
FICA Wage Caps and Floors
There are different wage caps and floors to both components of the FICA tax. Let’s start with the Social Security tax: For the 2025 tax year, once you hit the $176,100 wage base limit, you are no longer required to pay the Social Security tax.
Since both employee and employer both pay 6.2% for Social Security, this means the total cap is 12.4%.
On the other hand, there is no limit on the wage base of the Medicare Tax. On the contrary, higher earners, past a certain point, will have to pay an Additional Medicare Tax, which stands for 0.9% for every dollar above the threshold amount.
Other Payroll Tax Items
On top of the FICA, you might also see a couple of other payroll tax items when going over your tax withholdings.
FUTA Tax: The Federal Unemployment Tax Act (FUTA) is a federal program that provides unemployment benefits for people that lost their job. This is, however, not paid by the employees, only by employers.
SUTA Tax: In principle, it’s a similar situation to the FUTA tax, the main difference being that this particular tax funds a state program. This one is also paid by employers.
Are FICA EE Taxes Mandatory?
Yes, making your FICA contributions is mandatory for both employees and self-employed individuals (the latter even have to pay the employer part most of the time). Let’s dive into the specifics of who has to pay what, when, and how much of it.
Who Is Required to Pay FICA EE Tax?
Here are the three main entities related to the EE part of the FICA Tax:
Employees
First and foremost, the majority of full-time and part-time employees in the U.S. are subject to the FICA tax. There are no distinctions between employees of the public and private sectors, and their contributions will be automatically withheld from their paychecks by their employers and then matched.
Self-Employed Individuals
Self-employed people are not considered “traditional employees” under U.S. law, so it falls upon them to pay both the employee and employer portions of FICA through the Self-Employment Contributions Act (SECA) tax. This essentially doubles the standard rate, which translates into a 15.3% contribution of their net earnings.
Household Employees
If you work as a nanny, caregiver, housekeeper, or any other type of household employee, and you earn above $2,800 (as of 2025), then your employer must withhold and match FICA contributions on your behalf.
Federal, State, and Local Government Employees
While we mentioned that government employees had to pay FICA taxes just like those in the private sector, some exceptions may apply. For example, some government employees may be covered under alternative retirement systems instead of social security. Medicare taxes, however, still apply.
Exemptions
The following people are exempt from paying the FICA EE tax:
- Non-resident Aliens: Holders of a F-1, J-1, M-1, or Q-1 visa may be exempt if they also meet other specific criteria.
- Members of Religious Sects: People who belong to select religious groups that specifically oppose insurance can apply for a tax exemption.
- Student Workers: Any student employed by their educational institution while still enrolled (at least part-time) may be exempt from the EE portion of the FICA tax.
- Foreign Government Employees: This applies to employees working for foreign governments or other international organizations on U.S. soil.
The Role of Employers in FICA Tax
Employers are legally obligated to withhold 6.2% for Social Security, and 1.45% for Medicare from their employee’s taxable wage. That’s not including the part that’s withheld for regular federal taxes. On top of that, employers are also legally obligated to match the contributions of their employees dollar for dollar, so paying FICA taxes is mandatory for both parties.
Failure to comply can result in penalties for the employer, which include fines, penalty fees, and even criminal charges. If you are an employer yourself, and your employees make money above the threshold defined by the federal government, then it’s your responsibility to start withholding the FICA contributions from their wages.
How FICA Tax Funds Social Security and Medicare
The funds collected through FICA EE tax are allocated as follows:
- Social Security Trust Fund: Pays for retirement, disability, and survivors’ benefits.
- Medicare Trust Fund: Covers hospital insurance and medical services for eligible individuals.
Planning for FICA EE Tax
Understanding your FICA EE tax obligations can help with:
- Budgeting and financial planning
- Retirement savings strategies
- Tax filing and potential deductions (especially for self-employed individuals)
The Final Word on the FICA EE Tax…
FICA EE tax plays a vital role in supporting essential federal programs like Social Security and Medicare. While it reduces your take-home pay, it also provides long-term benefits that support you and others throughout retirement and in times of need. Understanding how this tax works can help you make informed decisions about your finances.
FICA EE Tax: FAQ
1. What does FICA tax stand for?
FICA tax stands for the employee’s portion of the Federal Insurance Contributions Act tax. This tax is essential because it helps fund critical federal programs such as Social Security and Medicare, which provide financial assistance for retirement, disability, and healthcare needs.
2. How is FICA EE tax calculated?
FICA EE tax is calculated as 6.2% of your wages for Social Security, up to the annual wage cap ($160,200 in 2023), and 1.45% for Medicare on all earnings. If your income exceeds $200,000 (for single filers) or $250,000 (for married couples filing jointly), an additional 0.9% Medicare tax applies to the excess earnings.
3. Can I be exempt from FICA EE tax?
Certain individuals may qualify for exemptions from FICA EE tax. This includes specific groups like students working at their educational institutions while enrolled at least half-time, non-resident aliens with specific visa statuses (like F-1, J-1, M-1, or Q-1), and members of recognized religious sects that oppose insurance. Each exemption has eligibility criteria that must be met.
4. What happens if my employer doesn’t withhold FICA EE tax?
Employers are legally required to withhold FICA EE tax from employee wages. If they fail to do so, the employer may face penalties and interest for non-compliance. However, the employee may still be liable for the unpaid tax, making it important to review pay stubs regularly to ensure proper deductions.
5. Does FICA EE tax affect my Social Security benefits?
Yes, the amount you contribute to Social Security through FICA EE tax directly impacts your future benefits. The Social Security Administration calculates your benefits based on your lifetime earnings, so consistently paying into the system helps maximize your retirement, disability, and survivor benefits.
6. Is FICA EE tax the same for self-employed individuals?
No, self-employed individuals pay both the employee and employer portions of FICA taxes through the Self-Employment Contributions Act (SECA) tax. This results in a combined rate of 15.3% on net earnings (12.4% for Social Security and 2.9% for Medicare). However, self-employed individuals can deduct the employer-equivalent portion when filing their income tax returns.
Jacob Dayan
Entrepreneur • CEO Community Tax, LLC
Jacob Dayan is the CEO and co-founder of Community Tax LLC, a leading tax resolution company known for its exceptional customer service and industry recognition. With a Bachelor’s degree in Business Administration from the University of Michigan’s Ross School of Business, Jacob began his career as a financial analyst and trader at Bear Stearns and Millennium Partners before transitioning to entrepreneurship. Since 2010, he has led Community Tax, assembling a team of skilled attorneys, CPAs, and enrolled agents to assist individuals and businesses with tax resolution, preparation, bookkeeping, and accounting. A licensed attorney in Illinois and Magna Cum Laude graduate of Mitchell Hamline School of Law, Jacob is dedicated to helping clients navigate complex financial and legal challenges.
