FICA Taxes | Social Security and Medicare Tax

FICA (Federal Insurance Contributions Act) taxes must be paid by every taxpayer. The FICA taxes consist of two different taxes with a combined rate of 7.65 percent. These taxes are Social Security and Medicare taxes. The Social Security tax rate is 6.2 percent while the Medicare tax rate falls short at 1.45 percent. Both the Social Security and Medicare taxes are mandatory for employees, employers, and self-employed individuals that don’t have an employee working for them. 

FICA taxes for employees

The FICA taxes aren’t anything confusing for taxpayers that work for an employer. When your employer processes payroll, you will simply pay 7.65 percent of your earnings in Social Security and Medicare taxes. You won’t even notice this though as these taxes will be taken out from your income by your employer and you will get your net income.

FICA taxes for employers

FICA taxes are a big burden on most employers’ shoulders. Employers match the Social Security and Medicare taxes the employee pays through payroll. So employers are responsible for paying FICA taxes based on the employees’ earned income. For example, if an employee has earned $1,000 during the week, $76.5 of that will go toward the Social Security and Medicare taxes. The employer is responsible for paying the same amount in FICA taxes. There is a relation between how much an employer owes in FICA taxes and how much the employee needs to pay in Social Security and Medicare taxes.

FICA taxes for self-employed

The taxpayers who work for themselves are subject to self-employment tax (SE tax). This is your Social Security and Medicare tax payments. Since entrepreneurs are considered as both the employee and the employer, they need to pay both the employee and the employer portion of these taxes. So the tax rate for self-employed individuals for the purposes of Social Security and Medicare taxes is 15.3 (7.65×2).

Schedule SE for Form 1040

Self-employment tax on net earnings can be calculated using Schedule SE. This is an attachment of Form 1040 that must be filed by all self-employed individuals. 

The self-employment tax applies to all those who work for themselves and the Social Security Administration needs the information provided on the Schedule SE to figure out Social Security benefits. If you’re a Medicare beneficiary or receive benefits, you are still not exempt from paying self-employment taxes. So everyone regardless of their age and status of receiving benefits must pay self-employment taxes.