How to calculate fica and medicare tax 2022

The FICA tax (Federal Insurance Contribution Act) tax is an employee payroll tax that funds Social Security benefits and Medicare health insurance. The tax is split between employers and employees. They both pay 7.65% (6.2% for Social Security and 1.45% for Medicare) of their income to FICA, the combined contribution totaling 15.3%. The maximum taxable earnings for employees as of 2020 is $137,700. There is no wage limit for Medicare.

Table of Contents Show

FICA Tax Calculation
Additional Medicare Tax
How does FICA tax work?
What is the FICA tax rate?
How to calculate FICA tax
Single filer earning $45,000
Single filer earning $210,000
Joint filers earning over $275,000
FICA tax FAQ
What is the purpose of the FICA tax?
Is FICA tax the same as Social Security?
Does everyone pay FICA tax?
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FICA Tax Calculation

To calculate FICA tax contribution for an employee, multiply their gross pay by the Social Security and Medicare tax rates. For example, if an employee’s taxable wages are $700 for the week, their social security contribution would be: $700.00 x 6.2% = $43.40. Their Medicare contribution would be: $700.00 x 1.45%= $10.15. These are also the amounts the employer would pay.

The FICA (for Federal Insurance Contributions Act) tax (also known as Payroll Tax or Self-Employment Tax, depending on your employment status) is your contribution to Social Security and Medicare as a percentage of your salary:

If you're an employee, then you pay one half of this total (probably as a withholding on your paycheck); your employer pays the other half for you (and then gets a deduction for their half on their corporate tax return, since it's an expense - for them it's as if the FICA "half" is an additional piece of salary). If you're self-employed, then you pay the whole total yourself as Self-Employment tax, and then get a tax deduction on half of it as an "adjustment" on your tax return.

Now here's where it gets a little confusing. What the previous paragraph shows is that being self-employed is like being an employee, but at a lower salary - lower by the FICA "half" that employers pay for their employees. And so, if you're self-employed, you don't have to pay FICA on all your salary, just on 92.35% of it (92.35 being 100 minus 7.65 - which is the contribution that your employer would have paid, if you had an employer, which you don't).

Additional Medicare Tax

Starting in 2013, people with high salaries will pay a new additional Medicare tax of 0.9%. Unlike the rest of Medicare, this new tax depends on your filing status:

The Federal Insurance Contributions Act tax, known commonly as FICA tax, is money withheld from an employee’s pay by their employer to then be collected by the federal government. The FICA tax funds the federal government’s Social Security and Medicare programs. In turn, FICA helps provide benefits to retirees, children, and the disabled.

How does FICA tax work?

An employer deducts a percentage of an employee’s gross pay for FICA taxes. When the deduction is made from the employee’s paycheck, the employer is responsible for remitting it to the IRS (Internal Revenue Service). The employer also matches the employee's portion and submits both. Self-employed individuals withhold a version of FICA taxes from their income, known as self-employment tax, and pay both the employee and employer portions.

FICA tax refers to two types of taxes: Social Security tax and the Medicare tax. Almost all income is subject to FICA taxes, with a few exceptions:

Some minor children. Children under 18 employed by their parents do not pay FICA taxes.
Retirement distributions. Income received from qualifying employer retirement plans, such as a 401(k), is not subject to FICA tax.
Students. Students employed and earning income from the school, college, or university they attend do not pay FICA taxes.
Others. Some religious organization employees and state or local government employees may be exempt from paying the FICA tax.

FICA taxes pay the Social Security and Medicare benefits of current beneficiaries. A person earns one credit for each quarter they pay these taxes and needs 40 credits to claim Social Security benefits at their eligible age.

What is the FICA tax rate?

The overall FICA tax rate is 15.3%. This FICA tax rate is divided equally between the employee and the employer, so each is responsible for 7.65%. The Social Security tax accounts for 6.2% and the Medicare tax accounts for 1.45%. Employers use the employee’s gross pay to determine the FICA tax amounts.

There is a wage base limit on the Social Security tax, meaning some income is exempt from the tax. In 2022, only the first $147,000 of an employee’s income is subject to the Social Security tax. Any income earned over that amount does not have the 6.2% for Social Security withheld. There is no limit on the Medicare tax, but there is an additional tax of 0.9% for single filers on earnings over $200,000 and joint filers on earnings of more than $250,000.

How to calculate FICA tax

FICA tax is calculated differently based on your income and whether you are a single filer or filing jointly. If you are trying to determine how much should be withheld for FICA, multiply the tax percentage by the employee’s gross income. The formulas are:

Gross income (up to $147,000) x 6.2% = Social Security tax

Gross income x 1.45% = Medicare taxes

Additional income over $200,000 x 0.9% = Additional Medicare taxes

Here are some scenarios to help understand the differences based on the amount of income.

Single filer earning $45,000

To calculate Social Security tax, multiply the $45,000 salary by 6.2%, for $2,790 due. For Medicare tax, multiply the salary by 1.45%, for $652.50 due for Medicare taxes. A total of $3,442.50 is due from this employee’s salary for the employee’s portion of FICA taxes.

Single filer earning $210,000

Social security tax is only calculated on the first $147,000 of an employee’s income, so the employer multiplies that income by 6.2%, for $9,114 in Social Security taxes. For Medicare taxes, a single-filer earning more than $200,000 pays an additional 0.9% on earnings over $200,000. Therefore, $210,000 is multiplied by 1.45%, for $3,045, and the additional $10,000 is taxed at 0.9%, for an additional $90 in Medicare taxes, for Medicare taxes owed of $3,135. The total FICA taxes for this employee is $12,249.

Joint filers earning over $275,000

If one spouse earns $225,000 and the other earns $100,000, Social Security tax is still calculated the same. The employer is responsible for withholding 6.2% on the first $147,000 for the employee earning $225,000, for $9,114 in Social Security taxes. The spouse earning $100,000 will have their whole income subject to Social Security tax, for a total of $6,200. The joint Social Security liability for these filers is $15,314. For Medicare taxes, the filers will owe additional Medicare tax, since the combined income is over $275,000. The employer of the spouse earning $225,000 is responsible for withholding the additional Medicare tax of $225 ($25,000 x 0.9%), in addition to the regular Medicare tax amount of $225,000 multiplied by 1.45%, for $3,262.50 in Medicare taxes. The spouse earning $100,000 will have $1,450 withheld for Medicare taxes. The couple will be responsible for $4,937.50 for Medicare taxes. Their total FICA taxes: $20,251.50.

Joint filers who each earn below the $200,000 threshold but earn more than $250,000 combined would not be required to have the additional Medicare tax withheld by their employers. That’s because neither meets the individual $200,000 threshold, which would require employers to withhold the additional tax.

FICA tax FAQ

What is the purpose of the FICA tax?

The FICA tax provides for the Social Security and Medicare programs that benefit children, retirees, and disabled people in the US. The Federal Insurance Contributions Act (FICA) was passed in 1935 in response to the Great Depression and began by funding Social Security. It later expanded to include Medicare.

FICA tax includes two contributions: the Social Security tax and Medicare tax. The FICA tax rate is 7.65%, and is paid equally by employee and employer, for a total of 15.3%. Of that, 6.2% is for the Social Security tax and 1.45% is for the Medicare tax.

Does everyone pay FICA tax?

Nearly everyone pays FICA tax, with a few exceptions: children under 18 employed by a parent, retirees receiving distributions from a qualified employer retirement plan, and students working at the school they attend. Some religious organizations and state and local employees may also be exempt from FICA.