The Complete Guide to FICA and Medicare Taxes: Everything to Know

Have you looked at your income tax bracket to figure out what you’ll owe in taxes? Before you stop at that number, don’t forget about FICA and Medicare taxes. FICA Taxes are also commonly known as Social Security Taxes.

These are separate from income tax, and they can add up quickly. Knowing about these taxes can help you get a better idea of how much you will owe or get back when you file your taxes.

Read on to learn more.

FICA(Social Security) Taxes

The Federal Insurance Contributions Act (FICA) implemented a tax that employers have to withhold from employee pay. This law came about in 1935, and it has helped fund programs such as Social Security.

Throughout your career, you pay into Social Security, and you’ll enjoy benefits after you retire. FICA taxes also cover things like disability insurance and life insurance.

If you can’t work at some point, you can start getting disability benefits through Social Security. As you work, you’ll earn credits that can determine how much you’ll be able to get in benefits.

Consider the FICA tax rates and limits as well as other details.

Tax Rates

Since FICA tax isn’t part of income tax, the rate doesn’t change with your income. Employees will owe 6.2% of their income to contribute to the Social Security portion of FICA.

Your employer should withhold that amount from each paycheck you receive. The company will also need to pay 6.2% of your income to help support Social Security and other FICA benefits.

Now, FICA taxes can change from year to year, depending on the wage base. They may go up over time, so prepare to pay more in the future.

Tax Limits

If you make over a certain amount, you may not have to pay FICA taxes on all of your earnings. In 2021, the threshold was $142,800, and the 2022 threshold is $147,000.

So if you make more than $147,000 in 2022, you won’t owe more than $9,114 in FICA taxes as an employee. Whether you earn a few dollars more or a few hundred thousand dollars more, your FICA taxes will stay the same.

This can be useful if you make a lot of money, whether you work for yourself or someone else. Keep in mind that if you work for yourself, you will face higher taxes overall.

When You Don’t Have to Pay FICA Taxes

It may surprise you, but you might not always have to pay FICA taxes. For example, if you have children under 18 who work for your business, they won’t owe FICA taxes.

As an employer, if you contribute to your employees’ retirement accounts, those contributions may not be subject to FICA. In some cases, state and local government employees may not have to pay the tax.

The same is true for some salaries that churches pay their employees. Be sure to talk with an accountant to see if you will owe FICA taxes when working a job.

How to Calculate FICA Taxes

As you prepare for tax season, you may want to know how to calculate how much you’ll pay into FICA. You will need to calculate your overall income for the year and consider the current FICA tax rate.

For example, maybe you make $100,000 a year. If you have a traditional job with an employer, you would have to pay $6,200 in FICA taxes during that period.

You should also think about what allowances you took on your W-4. If you took more allowances, you may have to pay more of the tax at the end of the year rather than with employer withholding.

Medicare Taxes

Medicare taxes also fall into FICA, but they often have a separate line on your paycheck. They also face different restrictions, especially when your income exceeds a certain amount.

Once you reach 65 years old or have a qualifying disability, you can obtain health coverage through Medicare. To help cover these costs, people who work will contribute money toward the program.

That way, it can keep running until you’re ready to retire or you have a disability. The tax is smaller than the rest of FICA, but it’s an important part of taxes overall.

Consider what Medicare tax is and how much you may have to pay each year.

Tax Rates

The Medicare tax rate is a flat 1.45% of your wages, so you will pay this no matter how much you make. Like other FICA taxes, the Medicare rate may change over the long term.

As the cost of living goes up, you can expect taxes to increase as well. Fortunately, the tax rate shouldn’t increase significantly when you pay Medicare taxes.

So whether you make a little or a lot of money, you can prepare for this tax on your next paycheck. Then, you won’t rely on that money to cover bills or other expenses.

Tax Limits

Unlike Social Security tax, Medicare tax doesn’t stop after a certain income threshold. You will need to pay 1.45% of your wages whether you earn $30,000 or $300,000 a year.

However, if you make more than $200,00 in a year, you will owe an additional Medicare tax on those extra earnings. The tax is 0.9% of anything you earn over the $200,000.

For married couples, this threshold increases to $250,000 per year. So if a single person makes $300,000 a year, they would owe 1.45% on the first $200,000 and 2.35% (1.45% + 0.9%) on the last $100,000.

How to Calculate Medicare Taxes

If you make less than $200,000 or $250,000 a year depending on your filing status, calculating Medicare taxes is straightforward. For example, someone who makes $100,000 would owe $1,450 in Medicare taxes.

A married couple with a joint income of $300,000 would owe $3,625 on the first $250,000. They’d owe an extra $1,175 for the remaining $50,000 for a total of $4,800.

However, this calculation may get more complex if you or your spouse are self-employed. People who work for themselves will pay double in Medicare taxes because they’ll be responsible for both the employee and employer portions.

But you’ll only pay the employee portion of the additional Medicare tax. Employers don’t have to pay the extra 0.9% when paying their part of FICA and Medicare taxes.

Of course, as with other taxes, the less you make, the less you’ll owe in Medicare taxes. While you can use deductions to lower your income tax rate, you won’t be able to lower the Medicare tax rate.

Keep that in mind when taking a job and negotiating pay. If you work for yourself, keep these taxes in mind when calculating your salary and other benefits.

Employed vs. Self-Employed

When looking at FICA and Medicare taxes, you’ll see that the taxes can vary significantly for employees and self-employed people. If you work for yourself, you will almost always owe more in taxes than an employee with the same salary.

As you start preparing for tax season, consider how FICA and Medicare taxes differ for employees and business owners. Then, you can know what to expect when it comes to your tax bill.

You may even be able to lower your taxes in the future with the right credits and deductions. For now, consider how much you can expect to pay if you don’t have an employer.

Tax Rates

If you work for yourself, you’ll be responsible for the employee and employer portions of FICA and Medicare taxes. The tax rates will technically stay the same at 6.2% and 1.45% for the taxes.

However, because you pay the employer portion, you will owe 12.4% of your income in FICA taxes. Medicare taxes for self-employed people come out to 2.9% of your income.

Of course, these calculations only apply up to the threshold for Social Security taxes. If you make more than that, you’ll have to consider where the tax drops off and if you’ll incur the additional Medicare tax.

For example, someone who makes $300,000 in 2022, will only owe Social Security tax on $147,000. However, they’ll owe Medicare tax on all of their earnings, and they’ll owe the extra Medicare tax on the last $100,000.

If you make a lot of money from self-employment, you may want to work with an accountant. They can help you figure out how much money you should save for taxes.

How You Pay FICA and Medicare Taxes

Another difference between employees and self-employed workers is how you pay FICA and Medicare tax. When you have an employer, they will take care of withholding these taxes.

You may owe some taxes at the end of the year if you take more allowances. However, your tax bill shouldn’t be too expensive.

If you work for yourself, you will have to save money for taxes throughout the year. Your clients and customers will give you the entire amount they owe you, and that includes what you owe the government.

Once you start making a consistent income from self-employment, you’ll need to pay your taxes quarterly. This can help reduce your bill at the end of the year, and you may avoid penalties for late payments.

You have control over how much you pay in taxes each quarter. It helps to have an accountant or accounting software to help estimate how much you should pay every quarter to stay on top of your FICA and Medicare taxes.

Are FICA and Medicare Taxes Expensive?

FICA and Medicare taxes can be expensive, especially if you make more money. Whether you’re single or have a family, you don’t have much control over the final tax rate.

Yes, you can find a job that pays you just what you need to survive. That way, you can keep from paying more than necessary in FICA taxes, but you won’t be able to spend money on other things you may want.

Fortunately, the tax rate isn’t super high, especially for traditional employees. And as you owe more in these taxes, you should make more overall to compensate for that increase.

How Can You Lower FICA and Medicare Taxes?

The best way to lower your FICA and Medicare taxes is to lower your taxable income. Of course, you can do this by taking a job with a lower salary or by working fewer hours.

Another option is to look for tax deductions, especially if you work for yourself. The right tax deductions can help you lower the amount of income that will face taxes, which may help you save more overall.

If you work for yourself, you can also consider switching to working for an employer. You can also change your business to a corporation so that your personal taxes will be less.

What If Your Employer Doesn’t Withhold Taxes?

Your employer should withhold your taxes if you’re a traditional employee. If they don’t, consider reporting them or asking the human resources department why the company isn’t withholding taxes.

In some cases, there may be a misunderstanding, so you might be a contractor rather than an employee. You can see how much money your employer is withholding on your paystub to make sure they’re saving enough.

If you want to be a traditional employee, you should see a line for FICA taxes and another for Medicare. That way, you’ll know for sure that your employer is withholding the money, so you don’t have to save it yourself.

Are FICA Taxes Part of Your Refund?

You may receive FICA taxes as part of your refund if you overpaid them during the year. For example, maybe you’re self-employed, and you overestimated your annual earnings.

Or perhaps you didn’t take any allowances on your W-4, so your employer withheld more taxes than necessary. Either way, you might be able to get a good amount of money back on your tax return.

However, if you didn’t overpay, you may even owe FICA taxes when you file. Be sure you have some money in savings in case this happens, particularly if you work for yourself or if you took more allowances as an employee.

FICA and Medicare Taxes Don’t Have to Be Scary

Paying FICA and Medicare taxes is a part of life for working Americans. If you have an employer, paying these taxes doesn’t take any effort on your part other than filling out a W-4 when you start a job.

However, business owners will need to save for these taxes and pay them quarterly. That way, they can keep up with payments and not have a huge tax bill at the end of the year.

Do you want to estimate how much you’ll owe in income taxes? Use an income tax calculator.

Learn More

Is Social Security Taxable?

Self Employed Social Security and Medicare Taxes: Key Facts

Self Employment Taxes vs. Regular Income Taxes