The term “FICA” stands for “Federal Insurance Contributions Act.” FICA taxes fund Social Security and Medicare.
The FICA equation for an employee is: 6.2% of gross wages are withheld from pay for Social Security, and 1.45% for Medicare. The 6.2% is assessed on wages up to the Social Security Wage Base cap for that year; for 2013, that cap is $113,700).
For an employee who makes less than $113,700, they’ll pay 7.65% in FICA taxes (6.2 + 1.45). Additionally, the employer puts in a matching contribution of 7.65%. Total contribution = 15.3% (7.65 + 7.65).
For self-employed taxpayers, FICA taxes are called self-employment tax. Self-employment tax is equal to 15.3% (the self-employed person is considered both employer and employee for FICA tax purposes and so pays 7.65% x 2) . Self-employment tax is accounted for on the self-employed person’s tax return.
For more tax terms, click on the Glossary link at the top of the page.
“This blog post, along with comments that may follow, should not be considered tax advice. Before you make final tax or financial decisions, please secure a professional tax advisor to give you advice about your unique situation. To secure Jason as your accountant, please click on the ‘Services’ link at the top of the page.”