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Payroll & Taxes

Understanding the Basics of FICA Tax

Demystifying common payroll deductions

Blog Author - Keertana Anandraj
Keertana Anandraj
Mar 18, 20242 minutes
Blog Author - Keertana Anandraj
Keertana Anandraj

Keertana Anandraj is a part-time freelance writer and full-time sustainability analyst. Before Justworks, she began her freelance career writing for The Financial Diet and Career Contessa. She currently resides in New York City.

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What is FICA Tax?

FICA stands for Federal Insurance Contributions Act, and it is a federal law that requires employers to withhold three separate taxes from their employees' paychecks: Social Security tax, Medicare tax, and Additional Medicare tax. These taxes are collectively known as FICA taxes

Social Security Tax

The Social Security tax is a 6.2% tax on wages, up to a certain limit. This limit is adjusted annually and if you make more than the limit for that year, you will only pay the Social Security tax on your income up to that limit. For any income earned past that limit, you will not need to pay Social Security taxes.

Medicare Tax

The Medicare tax is a 1.45% tax on all wages, with no income limit. This tax goes towards funding the Medicare program, which provides health insurance for individuals over the age of 65 and those with certain disabilities. 

Additional Medicare Tax

The Additional Medicare tax is a 0.9% tax on wages that exceed a certain threshold. This tax applies to wages above a certain threshold and is intended to help fund Affordable Care Act tax provisions. For single filers, this threshold is $200,000, for married couples filing jointly it is $250,000, and for married couples filing separately it is $125,000. Note that this tax only applies to individuals who earn above these thresholds.

Why is FICA Tax Deducted?

Ah, the age-old question: why does FICA tax have to take a bite out of a hard-earned paycheck? Well, think of it as paying it forward. By contributing to Social Security and Medicare now, you're investing in your own future and helping ensure that these vital programs will still be around when you need them.

Exemptions and Exceptions to FICA Tax

While most employees are subject to FICA tax on their wages, there are certain exemptions permitted. For example, charitable organizations, churches and/or religious organizations, private foundations, political organizations and other nonprofits and the individuals employed by them may be exempt from FICA tax obligations. It's essential to understand these exemptions and exceptions to ensure compliance with tax regulations.

How Does FICA Tax Affect A Paycheck?

So, how does FICA tax affect a paycheck, you ask? Well, it's pretty straightforward: the more you earn, the more you contribute. 

To calculate FICA tax, you can use the following tax calculator as provided by the IRS.

How Justworks Can Help

If you're a small business owner looking to demystify payroll for you and your team, you don’t have to tackle them alone: Justworks is here to help! 

Justworks can assist by streamlining your business via Justworks Payroll, which includes calculating and withholding FICA taxes from employee paychecks. Justworks also helps businesses stay on top of changing regulations, can help submit required documents to the IRS, and even aid in classifying employees for tax purposes. Get started today let us handle the HR so you can do what you do best - run your business.

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor.
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Written By
Blog Author - Keertana Anandraj
Keertana Anandraj
Mar 18, 20242 minutes

Keertana Anandraj is a part-time freelance writer and full-time sustainability analyst. Before Justworks, she began her freelance career writing for The Financial Diet and Career Contessa. She currently resides in New York City.

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