FICA tax rates 2025: What they are and how they work

If you're an accountant or employer in the US, you'll know that staying on top of your payroll tax requirements is paramount. In this blog, we will delve into FICA (the Federal Insurance Contributions Act), specifically the FICA tax rates required to stay compliant, avoid penalties and manage payroll accurately.

Whether you’ve been managing payroll for years or are just starting to hire your first employee, read on to getting a handle on FICA tax rates for 2025 and ensure you stay compliant.

But what exactly is FICA, and why is it important? Let's break it down.

What is FICA tax?

FICA stands for the Federal Insurance Contributions Act, a US federal law that requires both employees and employers to contribute a portion of wages to fund Social Security tax and Medicare tax programs. These programs provide crucial benefits, like retirement income, disability assistance, and healthcare for employees aged 65 and older.

Since FICA is a shared responsibility, employers must match employee contributions for both Social Security and Medicare taxes.

What is FICA withholding?

FICA withholding is the amount automatically deducted from an employee's paycheck to fund Social Security and Medicare programs. These withholdings are calculated as a fixed percentage of an employee's wages, with employers required to match the same amount.

FICA withholding is required by law to ensure that workers and their families have access to financial and healthcare support when they need it most. By mandating contributions from both employees and employers, the system ensures a shared responsibility in funding benefits that millions of Americans rely on.

What is included in FICA tax?

As mentioned above, FICA tax is made up of two components: Social Security tax and Medicare tax. Here's a breakdown of what each covers and how it is applied:

Social Security tax

• Funds retirement benefits for individuals who have reached the eligible age, disability benefits for those unable to work due to significant health conditions, and survivor benefits for families of deceased workers.
• Social Security tax is applied to earnings up to a certain annual wage base limit (also known as the taxable maximum), which is $176,100 in 2025.

Medicare tax

• Funds healthcare services, including hospital stays, skilled nursing care, and some home health services, for individuals aged 65 and older and those with qualifying disabilities or end-stage renal disease.
• Unlike Social Security taxes, Medicare taxes have no wage base limit, meaning they apply to all earnings regardless of income level.
• Employees earning over $200,000 annually ($250,000 for married couples filing jointly) pay an extra 0.9% in Medicare taxes, known as the Additional Medicare Tax. Employers, however, do not contribute to this additional tax.

Now that we’ve covered the basics, let's take a closer look at the FICA tax rates in 2025.

How to calculate FICA tax withholding in 2025

For 2025, the withholding rates remain consistent with prior years. Here’s the breakdown on how to calculate FICA tax:

Social Security tax

• Employee contribution: 6.2%
• Employer contribution: 6.2%
• Total (employee + employer): 12.4%
• Taxable wage base limit for 2025 (announced by the Social Security Administration): $167,700. Earnings above this limit are not subject to Social Security tax.

Medicare tax

• Employee contribution: 1.45%
• Employer contribution: 1.45%
• Total (employee + employer): 2.9%
• No wage base limit.

For example, if you're an employer paying an employee $50,000 annually:

• You’ll withhold 6.2% for Social Security and 1.45% for Medicare from their paycheck.
• You’ll also pay the same 6.2% and 1.45% from your business funds.

These consistent rates simplify budgeting for employers while providing stability for Social Security and Medicare funding.

Self-employment tax (SECA)

The Self-Employment Contributions Act (SECA) differs from FICA in that it's specifically for ensuring self-employed business owners contribute their fair share of Social Security and Medicare tax.

For 2025, the SECA tax rate remains at 15.3%, covering both Social Security and Medicare. Here's how this is split:

Social Security Tax (12.4%): Applied to net earnings up to the annual wage base limit, which is $167,700 for 2025. Earnings above this limit are not subject to Social Security tax.

Medicare Tax (2.9%): Applies to all net earnings with no income cap. Additionally, high earners (net income exceeding $200,000 for individuals and $250,000 for married couples filing jointly) are subject to an extra 0.9% Medicare surtax, bringing their total Medicare rate to 3.8% for income above these thresholds.

How to calculate self employment tax

Self-employed individuals calculate their SECA taxes based on their net earnings from self-employment. Net earnings are determined by subtracting allowable business expenses from gross income. Once the taxable income is calculated:

1. Apply the Social Security tax rate (12.4%) to earnings up to $167,700.
2. Apply the Medicare tax rate (2.9%) to all earnings, with an additional 0.9% Medicare surtax applied to income exceeding the high-income thresholds.

Note: Unlike traditional employees who have payroll taxes withheld from each paycheck, self-employed individuals are responsible for paying SECA taxes themselves. These taxes are typically paid quarterly through estimated tax payments to the IRS. Estimated payments also cover income taxes and help self-employed professionals avoid underpayment penalties.

Why FICA and SECA compliance matters for employers

Staying compliant with FICA or SECA tax payments is non-negotiable. Here's why it matters:

1. Avoid Penalties: Incorrect withholding or failure to pay your business's share can lead to penalties from the IRS.
2. Support Your Team: By contributing accurately to Social Security and Medicare, you're helping secure your employees' futures.
3. Simplify Payroll: Using reliable payroll software or a trusted accountant can streamline FICA calculations and ensure timely filings.

Take the stress out of FICA compliance

Navigating FICA tax rates and employer responsibilities doesn’t have to be a headache. By understanding 2025 rates and staying proactive about payroll management, you can keep your business running smoothly.

Have questions about FICA? Need a hand with payroll calculations? Our managed payroll services and payroll software are here to support you. Staying informed today means no surprises tomorrow!