What Is FICA? Understanding Payroll Taxes and How They Affect You

If you’ve ever taken a close look at a paycheck, you’ve probably seen “FICA” listed among the deductions. But what exactly is it, and why does it take a chunk out of every paycheck? Whether you're an employer running payroll or an employee wondering where your hard-earned money is going, understanding FICA taxes is essential.

This article will define FICA, explain why it matters to your business, explore how and why it must be paid, and more. 

What Is FICA, and Why Should You Care?

FICA stands for the Federal Insurance Contributions Act, and it plays a critical role in funding essential programs like Social Security and Medicare. In 2024 alone, FICA taxes generated a staggering $1.71 trillion, accounting for 35% of total government revenue! That’s a lot of zeros, and it’s all going toward programs that millions of Americans rely on.

If you’re a business owner, FICA is not just another payroll deduction; it's a mandatory employer responsibility. Each time you process payroll, you’re not just withholding taxes from your employees’ paychecks — you’re also contributing a matching amount. 

In total, most employees see 7.65% of their paychecks go toward FICA, while employers contribute another 7.65%.

Here’s how it breaks down:

• Social Security Tax – 6.2% withheld from the employee’s wages, plus an additional 6.2% paid by the employer (totaling 12.4%).
• Medicare Tax – 1.45% withheld from the employee’s wages, with another 1.45% paid by the employer (totaling 2.9%).
• Additional Medicare Tax – Employees earning more than $200,000 (single) or $250,000 (married filing jointly) must pay an extra 0.9%, but the employer does not match this portion.

Payroll Taxes vs. FICA: What’s the Difference 

Payroll taxes, income taxes, FICA — are these one and the same or entirely different entities? 

In a nutshell, payroll tax is an umbrella term that covers several different taxes deducted from an employee’s wages. These taxes fund critical government programs, like Social Security, Medicare, and unemployment insurance. Employers are responsible for withholding and remitting these taxes to the appropriate agencies.

And, while FICA is a type of payroll tax, not all payroll taxes are FICA. Payroll taxes cover a broader range of deductions, including unemployment insurance and state programs, whereas FICA is solely focused on Social Security and Medicare.

FICA Wage Base and Taxable Limits

When it comes to payroll taxes, FICA isn’t a flat-rate free-for-all. There's a cap on how much of an employee’s wages are subject to Social Security tax, and that number changes every year. For 2025, that magic number — officially known as the Social Security wage base — is $176,100.

Here is a historical look at Social Security’s wage base over the last 10 years. 

A wage base means any income exceeding $176,100 won’t be subject to the 6.2% Social Security tax. If you’re earning more than that (lucky you!), Social Security stops taking its cut after you hit the threshold. The max an employer and employee will each pay in Social Security taxes for 2025 is $10,918.20. If you're self-employed? You get the full bill: $21,836.40.

But before you celebrate keeping more of your paycheck, there’s a catch — Medicare tax has no cap. That 1.45% tax keeps chugging along on every dollar you earn, no matter how high your salary climbs. And if you’re a high earner (more than $200,000 for individuals or $250,000 for married couples filing jointly), you’ll get hit with an additional 0.9% Medicare tax. The fun part? Your employer doesn’t match that extra amount — you’re on your own for that one.

Do You Have Multiple Jobs? Read This!

If you’re juggling more than one employer, each one must withhold Social Security taxes as if you haven’t hit the wage cap — because they don’t coordinate with each other. That means you could end up paying more Social Security tax than necessary. The good news? When you file your tax return, the IRS will let you claim a refund for any extra Social Security tax withheld.

FICA Deposit Schedules and Deadlines

The IRS doesn’t like surprises — especially when it comes to payroll taxes. That’s why they set strict deposit schedules for FICA and federal income tax withholding. Whether you're a mom-and-pop shop or a national corporation, understanding your deposit schedule is crucial to staying compliant and avoiding costly penalties.

Your FICA deposit schedule depends on the size of your employment tax liability. The IRS assigns one of two main schedules:

• Monthly Depositors: If you reported $50,000 or less in employment taxes during the IRS’s “look-back period” (the four quarters ending June 30 of the previous year), you must deposit taxes by the 15th of the following month.
• Semiweekly Depositors: If you reported more than $50,000, your deposit schedule follows your payday:

• Wages paid on Wednesday, Thursday, or Friday ? Deposit by the following Wednesday.
• Wages paid on Saturday, Sunday, Monday, or Tuesday ? Deposit by the following Friday. Note: New businesses automatically start as monthly depositors for their first year.

Annual and Quarterly Deposit Exceptions

Some small businesses get some extra breathing room:

• Annual Depositors: If your total employment tax liability is $1,000 or less for the entire year, you may qualify to file an annual Form 944 instead of the quarterly Form 941. But don’t assume — you need IRS approval first!
• Quarterly Depositors: If your employment taxes for the current or previous quarter are less than $2,500, you can remit them with your quarterly return instead of making separate deposits.

FICA Exemptions: Who’s Off the Hook?

For most Americans, paying Social Security and Medicare taxes (FICA) is just part of the deal when earning a paycheck. But, there are some circumstances that legally exempt workers and organizations from these taxes. If you qualify, you could save a chunk of change — but there’s a catch. Let’s take a closer look.

Religious Organizations: Divine Exemptions

Churches and certain church-controlled organizations can opt out of employer FICA taxes but not just for any reason. The organization must be opposed to paying Social Security taxes for religious reasons, and they have to file Form 8274 before their first quarterly tax return is due.

Sounds great, right? Well, there’s a downside. If a church takes this exemption, employees don’t get out of paying taxes entirely — they’ll be responsible for self-employment tax instead. And if the IRS finds that the organization isn’t filing W-2s for two years, they can retroactively revoke the exemption. Ouch.

Religious Individuals: No Social Security, No Benefits

Members of certain religious sects opposed to Social Security benefits can apply for a personal exemption by filing Form 4029. But there’s a big tradeoff: no Social Security benefits, ever. That means no retirement payments, no disability benefits, nothing.

Notably, the religious group must have existed since 1950 and have a history of taking care of its dependent members. So, if you were hoping to start your own sect to dodge FICA, you’re about 75 years too late.

Foreign Workers: Visa Matters

If you’re a nonresident alien working in the U.S., whether you pay FICA depends largely on your visa status. Here are a few key exceptions:

• Foreign students & educational professionals on certain visas (F-1, J-1, M-1, Q-1/Q-2) don’t have to pay FICA as long as they haven’t been here long enough to be considered a resident for tax purposes.
• Foreign government employees working in an official capacity don’t pay Social Security taxes — neither do their families or household staff.
• Temporary student workers at their own schools might qualify for a break on FICA taxes, but only if their employment is directly tied to their student status.

High Earners: The Hidden Exemption

While not technically an “exemption,” there is a cap on Social Security taxes. For 2024, any income above $168,600 is FICA-free — meaning if you earn more than that, you stop paying Social Security taxes on the excess.

What Happens if I Miss the Tax Deadline?

If you don’t pay FICA taxes, the consequences can be severe, even landing you in the pokey. Here’s what can happen:

1. IRS Penalties & Interest – The IRS will charge late payment penalties and interest on unpaid taxes, which can add up quickly.
2. Trust Fund Recovery Penalty (TFRP) – If you're a business owner or responsible for withholding payroll taxes, you could face the TFRP, which holds you personally liable for unpaid amounts.
3. Tax Liens & Levies – The IRS can file a federal tax lien against your assets or levy bank accounts and property to recover unpaid taxes.
4. Loss of Social Security Benefits – If you don’t pay FICA taxes, your future Social Security benefits (retirement, disability, etc.) may be reduced or lost.
5. Criminal Charges (Extreme Cases) – If the IRS determines that you willfully avoided paying FICA taxes, you could face criminal charges, fines, or even imprisonment.

For businesses, failing to remit payroll taxes is taken very seriously by the IRS, as these funds are considered trust funds collected on behalf of employees. If you're behind on FICA taxes, it's best to address the issue quickly by working out a payment plan with the IRS to avoid escalating consequences.

Simplify Your Tax Liability with OnTheClock 

Staying compliant with FICA tax requirements is a critical part of running a business, and missing deadlines or miscalculating payments can lead to costly penalties. 

That’s where OnTheClock’s time tracking and payroll services come in. With OnTheClock, you can accurately track employee hours, ensure precise payroll calculations, and seamlessly manage FICA deductions — helping your business stay on track and in compliance. Don’t leave payroll up to chance — simplify the process with OnTheClock today.