How to calculate FICA tax: A comprehensive guide for employers (2026)

As an employer, one of your key responsibilities is to ensure accurate payroll processing, which includes calculating and withholding the appropriate taxes from your employees' paychecks. Among these taxes are the Federal Insurance Contributions Act (FICA) taxes, which fund the Social Security and Medicare programs.

Failing to calculate and pay FICA taxes correctly can result in penalties and interest charges from the IRS, making it essential for employers to understand the ins and outs of these taxes. This guide breaks down how FICA taxes work, how to calculate them in 2026, what's new from recent legislation, and how to handle edge cases like tipped employees.

What is FICA tax?

FICA stands for the Federal Insurance Contributions Act, which is the legislation that mandates the collection of taxes to fund the Social Security and Medicare programs. The FICA tax consists of two parts:

1. Social Security tax: This tax funds retirement, disability, and survivor benefits for workers and their families. In 2026, the Social Security tax rate is 6.2% for both employees and employers, for a combined total of 12.4%. This tax applies only to the first $184,500 of an employee's earnings (the Social Security wage base, up from $176,100 in 2025). The maximum employee Social Security withholding in 2026 is $11,439, matched dollar-for-dollar by the employer.

2. Medicare tax: This tax helps pay for health insurance for people over 65 and those with disabilities. The Medicare tax rate is 1.45% for both employees and employers, for a combined total of 2.9%. Unlike Social Security tax, there is no wage base limit for Medicare tax; it applies to all of an employee's earnings. Employees earning more than $200,000 (single filers) or $250,000 (married filing jointly) are also subject to an Additional Medicare Tax of 0.9%, which employers withhold but do not match.

It's important to note that self-employed individuals are responsible for paying both the employee and employer portions of FICA under the Self-Employment Contributions Act (SECA). The self-employment tax rate is 15.3% (12.4% for Social Security and 2.9% for Medicare) on the first $184,500 of net earnings in 2026, and 2.9% on net earnings above that amount. Self-employed individuals can deduct half of their SE tax when calculating their adjusted gross income.

What's new for FICA in 2026?

The One Big Beautiful Bill Act (OBBBA), signed into law in July 2025, introduced several changes that affect FICA compliance for employers in 2026:

• Moving expense reimbursements are now permanently FICA-taxable. Employer-paid moving expense reimbursements (except for active military and certain intelligence community personnel) are permanently subject to FICA. The exclusion that had been suspended since 2018 is now permanently eliminated.

• FICA tip credit expanded to beauty service businesses. The Section 45B FICA tip credit, previously limited to food and beverage employers, now extends to beauty service businesses such as hair salons, nail salons, and barbershops.

• "No Tax on Tips" does not apply to FICA. The OBBBA created a federal income tax deduction for certain tipped workers, but this deduction does not reduce FICA withholding. Employers must still withhold and match FICA on all reportable tip income.

What is the FICA withholding process?

The FICA withholding process involves calculating and deducting the appropriate Social Security and Medicare taxes from each employee's paycheck and matching the withheld amount as an employer. Here are the key steps in the FICA withholding process:

1. Calculate the employee's taxable wages: Determine the employee's total compensation subject to FICA taxes for the pay period, including hourly wages, salaries, commissions, bonuses, and other taxable benefits. Note that some pre-tax deductions, such as contributions to an HSA, may reduce FICA-taxable wages, but traditional 401(k) contributions do not reduce FICA taxable wages.

2. Determine the Social Security and Medicare tax amounts: Apply the Social Security tax rate (6.2%) to the employee's taxable wages up to the 2026 wage base limit ($184,500) and the Medicare tax rate (1.45%) to all of the employee's gross wages. If wages exceed $200,000, also withhold the additional 0.9% Medicare tax on the excess.

3. Withhold the taxes from the employee's paycheck: Deduct the calculated Social Security and Medicare taxes from the employee's gross pay.

4. Match the withheld amounts: As an employer, you must match the employee's Social Security and Medicare taxes. You do not match the Additional Medicare Tax.

5. Deposit the taxes: Deposit both the employee and employer shares of FICA taxes with the IRS according to the required schedule (monthly or semi-weekly, depending on your tax liability).

6. Report the taxes: Report the withheld and matched FICA taxes on the appropriate tax forms, such as Form 941 (Employer's Quarterly Federal Tax Return) and Form W-2 (Wage and Tax Statement) for each employee.

How to calculate the FICA tax rate: 5 steps

To help you better understand the FICA tax calculation process, let's break it down into five simple steps and illustrate each step with an example.

1. Determine the employee's taxable wages

The first step in calculating FICA taxes is to determine the employee's taxable compensation for the pay period. This includes all compensation subject to FICA taxes, such as:

• Hourly wages or salaries

• Commissions and bonuses

• Overtime pay

• Sick pay and vacation pay

• Taxable fringe benefits

• Reported tip income

Real-world example: Let's say you have an employee named Sarah who earns an annual salary of $60,000. Assuming Sarah has no pre-tax deductions that reduce FICA wages, her taxable compensation for the year would be $60,000.

2. Calculate the Social Security tax

Apply the Social Security tax rate of 6.2% to the employee's gross wages, up to the 2026 annual wage base limit of $184,500.

Since Sarah's taxable income of $60,000 is below the annual wage base limit, you would calculate her Social Security tax as follows: $60,000 × 6.2% = $3,720

3. Calculate the Medicare tax

Apply the Medicare tax rate of 1.45% to all of the employee's gross wages. There is no wage base limit for the Medicare tax. High-earning employees are also subject to the Additional Medicare Tax of 0.9% on wages exceeding $200,000 (single filers) or $250,000 (married filing jointly). Employers must withhold this additional tax once wages cross $200,000 but are not required to match it.

To calculate Sarah's Medicare tax, multiply her taxable income by 1.45%: $60,000 × 1.45% = $870

4. Determine the total FICA taxes to withhold

Add the Social Security and Medicare taxes together to get the total FICA taxes to withhold from the employee's paycheck.

Sarah's total FICA taxes for the year would be:

• Social Security tax: $3,720

• Medicare tax: $870

• Total FICA taxes to withhold: $3,720 + $870 = $4,590

5. Match the withheld FICA taxes

As an employer, you must match the Social Security and Medicare taxes withheld from the employee's paycheck.

In Sarah's case, you would also pay $4,590 in FICA taxes, bringing the total FICA taxes paid for Sarah for the year to $9,180 ($4,590 withheld from Sarah's paychecks + $4,590 employer match).

FICA vs. FUTA: What's the difference?

FICA and FUTA are both federal payroll taxes, but they serve very different purposes:

• FICA (Federal Insurance Contributions Act) funds Social Security and Medicare. Both employers and employees pay equal shares: 7.65% each (6.2% Social Security + 1.45% Medicare).

• FUTA (Federal Unemployment Tax Act) funds unemployment benefits. This tax is paid exclusively by employers (not withheld from employees) at a rate of 6% on the first $7,000 of each employee's wages, reduced to an effective 0.6% after the standard state unemployment tax credit.

As an employer, you'll manage both, but they operate on entirely different wage bases, rates, and reporting forms: FICA is reported quarterly on Form 941, while FUTA is reported annually on Form 940.

How FICA applies to tipped employees

Tips are wages for FICA purposes. Employees must report tips to their employer by the 10th of the month following the month tips were received (using Form 4070 or an equivalent written statement). Employers are then responsible for withholding and matching FICA on all reported tip income.

Employers are also liable for FICA on unreported tips if the IRS notifies them, even if the employee failed to report. For food and beverage employers (and now beauty service businesses under the OBBBA), the Section 45B FICA tip credit allows eligible employers to claim a tax credit for the employer's share of FICA taxes paid on tips above the federal minimum wage.

How to pay FICA taxes

After calculating and withholding FICA taxes from your employees' paychecks, you must deposit the taxes with the IRS according to a specific schedule. The deposit schedule depends on your total employment tax liability reported on Form 941 (quarterly) or Form 944 (annually):

• If your tax liability is less than $2,500 for the current or previous quarter (Form 941) or for the year (Form 944), you may pay the taxes with your timely filed return instead of making deposits.

• If your tax liability is $50,000 or less during the lookback period, you are a monthly schedule depositor. You must deposit the taxes for a given month by the 15th of the following month.

• If your tax liability is more than $50,000 during the lookback period, you are a semi-weekly schedule depositor. You must deposit taxes for Wednesday, Thursday, and/or Friday paydays by the following Wednesday. For Saturday, Sunday, Monday, and/or Tuesday paydays, deposit by the following Friday.

The lookback period covers the four quarters starting July 1 of the second preceding year and ending June 30 of the prior year for Form 941 filers. For Form 944, it's the calendar year two years prior.

Regardless of your schedule, if you accumulate $100,000 or more in taxes on any day, you must deposit the taxes by the next business day. This makes you a semi-weekly depositor for at least the remainder of the calendar year and the following year.

You must make all federal tax deposits electronically using the Electronic Federal Tax Payment System (EFTPS). Penalties may apply for depositing late, depositing less than required, or mailing payments to the IRS instead of depositing.

Who is exempt from FICA taxes?

While most employees are subject to FICA taxes, there are some exceptions. Here are categories of workers who may be exempt:

1. College students: Students who are enrolled at least half-time and working part-time for their university are generally exempt from FICA taxes on those wages.

2. Religious groups: Certain members of religious groups, such as the Amish and Mennonites, may be exempt from FICA taxes if they meet specific criteria and file Form 4029 (Application for Exemption From Social Security and Medicare Taxes and Waiver of Benefits).

3. Nonresident aliens: Some nonresident aliens with specific visa types, such as F-1 students and J-1 cultural exchange visitors, may be exempt from FICA taxes on wages earned in the United States.

4. Foreign government employees: Employees of foreign governments, such as diplomatic personnel and consular officials, are typically exempt from FICA taxes on their wages.

5. Certain state and local government employees: Some employees of state and local governments who are covered by alternative retirement systems may be exempt from FICA taxes.

Carefully review the specific requirements for each exemption and consult with a tax professional or the IRS to determine if an employee qualifies for a FICA tax exemption.

Simplify payroll and tax filing with Rippling

Managing FICA taxes can be complex and time-consuming, especially for businesses with many employees. That's where payroll software like Rippling comes in.

Rippling automates FICA tax calculations, withholding, and payments, ensuring accuracy and compliance with IRS regulations. It also generates and files the necessary tax forms, like Form 941 and W-2s, saving you time and reducing the risk of errors.

Rippling also handles other payroll taxes, automatically calculating and filing them with the right federal, state, and local agencies at the right time, every time, so you can focus on running your business with peace of mind.