Social Security and Medicare Programs in the United States are funded by federal payroll Tax known as FICA tax. The contributions must be made by both employees and employers equally with 6.2% of wages for social security and 1.45% for Medicare without base limit. The base wage limit for 2024 to contribute FICA tax is $168,600 and $176,100 in 2025.
Individuals are required to pay an additional 0.9% Medicare surtax if their wage limits are over 200,000 for single filers, $250,000 for joint filers
What is FICA Tax?
The Federal Insurance Contributions Act (FICA) tax is a U.S. federal payroll tax that funds Social Security and Medicare programs. Employers and employees are responsible for contributing to FICA tax so that they create social safety nets for the future.
Both are required to contribute equally 6.2% of wages for social security up to a wage base limit and this limit for 2024 is $168,600.
This limit for 2025 will be $176,100 and both are required to contribute almost 1.45% of all wages for Medicare without any base wage limit.
Those whose earnings exceed $200,000 for single filers, $250,000 for joint filers, and $125,000 for married couples filing separately are required to pay an additional 0.9% Medicare surtax.
Who is required to pay FICA Tax?
Both employee and employer are responsible for paying the Federal Insurance Contributions Act to find Social Security and Medicare.
- Employers and employees are responsible for paying 6.2% for Social Security of their gross wage up to the $168, 600 base age limit for 2024 and $176,100 for 2025.
- Without any base limit, employers and employees are also responsible for paying 1.45% of their gross income for Medicare.
- Individuals with earnings over $200,000 for singles, $250,000 for joint filers, and $125,000 for married filing separately are required to pay an additional 0.9% Medicare surtax.
- Self-employed individuals are required to pay 15.3% of their total net income for FICA tax for both portions of employees and employers.
- This is done under the Self-Employment Contributions Act (SECA) and almost 12.4% of social security tax is required to pay up to the base age limit, 2.9% for Medicare without any base limit, and only high earners are required to pay 0.9% additional for Medicare surtax.
The importance of paying FICA tax for Social Security and Medicare
The Social Security and Medicare programs are very helpful for millions of Americans and through FICA tax contributions it’s easy for them to get supported during retirement or disability times.
Funding Social Security
- The FICA tax is important for social security benefits to retirees, disabled individuals, and survivors of deceased workers. The FICA tax contributions determine an individual’s eligibility and amount of social security benefits. For example, a maximum retirement benefit is provided based on the highest 35 years of earnings. In short, the social security portion of FICA tax provides benefits in old or needy life when you need to be support.
Supporting Medicare
- The Medicare program funds individuals who are 65 or older or sometimes earlier in case of disability and it helps to cover hospital stays, medical visits, and prescription drugs, significantly reducing out-of-pocket healthcare costs for beneficiaries. With FICA tax contributions, individuals are safe for affordable healthcare in times of need otherwise they have to struggle a lot to meet their healthcare expenses.
Exemptions of FICA Tax
The FICA tax which funds Social Security and Medicare has several exemptions for certain groups and people. Some of them are discussed below.
- A number of state and local employers and their employees in the states of Alaska, California, Colorado, Illinois, Louisiana, Maine, Massachusetts, Nevada, Ohio, and Texas are exempted from paying the social security portion of FICA tax currently.
- Employed students who are enrolled at school, colleges, or universities for at least halftime are exempted from paying FICA taxes.
- Foreign government non-resident alien employees are exempt from FICA on wages paid in their official capacities as foreign government employees.
- Certain religious group members such as the Mennonites and the Amish who oppose these types of benefits due to their beliefs may apply for exemptions from FICA taxes.
