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 they cover and how they are 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.

FUTA and SUTA Taxes 

Along with FICA taxes, employers need to understand the Federal Unemployment Tax Act (FUTA) and State Unemployment Tax Act (SUTA). These taxes fund unemployment benefits for workers who lose their jobs. 

What is FUTA Tax? 

FUTA is a federal tax that helps pay for unemployment benefits. Only employers pay this tax—nothing is deducted from employees' wages.  

The standard FUTA tax rate is 6.0% on the first $7,000 of each employee's wages (the federal wage base). However, if you pay your state unemployment taxes (SUTA) on time and in full, you may qualify for a 5.4% credit. That brings the FUTA tax rate down to 0.6%, or a maximum of $42 per employee per year.  

What is SUTA Tax? 

SUTA is a state-level tax that funds unemployment benefits. Unlike FUTA, SUTA tax rates and wage bases vary by state. Your rate may depend on: 

• Your industry  
• Your company's history of unemployment claims (experience rating) 
• Your state’s unemployment funding needs 

2025 SUTA Tax Rates and Wage Bases 

Each state sets its own SUTA tax rates and wage base. Here are a few examples for 2025: 

• Arizona: 0.04%–9.72% | Wage base: $8,000. 
• Arkansas: 0.200%–10.100% | Wage base: $7,000. 
• California: 1.5%–6.2% | Wage base: $7,000. 
• Colorado: 0.64%–8.68% | Wage base: $20,400. 
• Iowa: 0.0%–7.0% | Wage base: $36,100. 

Since rates and wage bases change yearly, check with your state’s unemployment agency for the latest updates. 

Key Differences Between FICA, FUTA and SUTA 

While all three taxes support social programs, they serve different purposes: 

Who pays: 

• FICA: Paid by both employees and employers 
• FUTA: Paid only by employers 
• SUTA: Paid by employers (some states also require employees to contribute) 

Tax rates and wage bases: 

• FICA: Fixed federal rates and wage base 
• FUTA: Standard federal rate, but state tax credits apply 
• SUTA: Varies by state 

What they fund: 

• FICA: Social Security and Medicare 
• FUTA and SUTA: Unemployment benefits 

Why FICA, FUTA and SUTA Matter for Employers 

These taxes are more than just deductions—they directly impact your business, your employees, and your bottom line. Here’s how: 

They keep you compliant. Paying the right taxes on time helps you avoid fines, audits, and back payments. 

They provide essential benefits. FICA contributions ensure that employees receive Social Security and Medicare, giving employees financial security in retirement or in case of disability. 

They support unemployed workers. FUTA and SUTA fund unemployment benefits, helping employees who lose their jobs through no fault of their own. 

They can reduce your tax burden. Paying SUTA on time may qualify you for FUTA tax credits, lowering your federal unemployment tax bill. 

They affect your cash flow. Payroll taxes rare a major expense—understanding them helps you budget and manage costs more effectively. 

By staying informed, you can meet your obligations, support your employees and keep your business financially stable. 

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!