FICA tax: what employers withhold, what they match, and where it goes wrong

If you run payroll, FICA is the part of it with the least judgment and the most exposure. The rates are fixed, there is nothing to elect, and an employee's withholding form does not change any of it.

Employers withhold 6.2% for Social Security up to an annual wage base and 1.45% for Medicare with no cap, then match both from company funds. That is 7.65% from the employee and 7.65% from the employer. A higher-paid employee also pays an additional 0.9% on Medicare wages above a threshold, which the employer withholds but does not match.

The mistakes are rarely in the arithmetic. They are in the additional Medicare threshold, the deposit schedule, and the belief that the employee's Form W-4 has something to do with it. Here is how each part works and which errors carry personal liability.

The rates are fixed, the wage base is not

Social Security is 6.2% from each side on wages up to an annual wage base. Medicare is 1.45% from each side on all wages with no ceiling.

The wage base changes every year, indexed to the national average wage index rather than to price inflation. This is the single most common source of stale information, because a figure that was correct two years ago is simply wrong now and looks plausible. Check the current year's number rather than relying on anything written previously, including any figure you have memorized.

Once an employee's wages with your company reach the wage base, Social Security withholding stops for the rest of the year and Medicare continues.

The cap applies per employer, not per person. Someone who works for two companies in a year can have the full Social Security tax withheld twice over, exceeding what they actually owe. The employer is not responsible for refunding that and should not try to. The employee claims the excess as a credit on their personal return.

The Additional Medicare Tax has two different thresholds

This is the part most often handled incorrectly, because there are two sets of numbers and they apply to different people.

What the employer does. Withhold an additional 0.9% once an employee's wages from your company exceed $200,000 in the year. That is the only threshold an employer uses, regardless of the employee's marital status or what they earn elsewhere. There is no employer match on this portion.

What the employee settles. The tax actually applies based on filing status thresholds, which differ for joint and separate filers. The reconciliation happens on the employee's personal return, where they may owe more than was withheld or get some back.

An employee who tells you they are married and should not have the extra withheld is describing their return position, not yours. Withhold at the single $200,000 wage threshold and let their return handle the rest. Failing to withhold because of an employee's instruction leaves the employer liable for the amount.

Your W-4 does not affect FICA at all

Guidance frequently lists Form W-4 as part of FICA compliance. It is not. The W-4 governs federal income tax withholding only.

FICA is a flat rate applied to wages. There are no allowances, no filing status, no extra withholding requests, and no exemption an employee can claim on a form. An employee who submits a W-4 claiming exemption from withholding is exempt from income tax withholding and still has FICA taken from every paycheck.

Employees also do not report FICA on their own return in the ordinary case. It is withheld, matched, and reported by the employer. The return only becomes involved for the Additional Medicare Tax reconciliation and for the excess Social Security credit when there were multiple employers.

Reporting runs through Form 941, not the employee's return

The employer side has three moving parts, and the deposit schedule is the one that catches people.

Form 941. Filed quarterly, reporting wages paid, federal income tax withheld, and both halves of Social Security and Medicare.

Form W-2. Issued annually to each employee and to the Social Security Administration, showing what was withheld.

Deposits. These are not quarterly. Depending on your prior-year liability you deposit either monthly or semiweekly, and if accumulated liability reaches $100,000 on any day, the deposit is due the next business day regardless of your normal schedule. That last rule surprises companies that run a large one-off payroll, such as a bonus round or an equity vesting event.

Equity is worth flagging separately. Share vesting generates wages subject to FICA, so a vesting date can create a large deposit obligation that has nothing to do with your regular payroll cycle.

Inkle runs managed payroll covering federal and state withholding obligations, and handles state payroll registration where you take on employees in a new state. Both matter more than they sound, because the deposit rules are unforgiving and a new state creates registration obligations before the first paycheck rather than after.

Unremitted FICA is a personal liability

The employee's half of FICA is trust fund money. You withheld it from their pay, and you are holding it on their behalf until it reaches the government.

If it does not, the IRS can assess the trust fund recovery penalty, equal to 100% of the unremitted employee portion, personally against anyone responsible for collecting and paying it who willfully failed to do so. That reaches owners, officers, and anyone with signature authority and knowledge of the shortfall.

Willfulness here does not mean intent to evade. Paying other creditors while knowing the deposit had not been made is generally sufficient. The liability survives the company, so dissolving the entity does not end it, and it is not dischargeable in bankruptcy.

The practical rule for a company short on cash is that an unpaid vendor is a commercial problem and an unfunded payroll deposit is a personal one.

Owners pay differently depending on structure

Self-employed people and partners pay both halves themselves, under the self-employment tax rules. Net earnings are multiplied by 92.35% first, then 12.4% applies up to the Social Security wage base and 2.9% applies to everything. The additional Medicare tax layers on above the thresholds. Half of the self-employment tax is deductible, as an adjustment to income on the personal return rather than as a business expense.

S corporation owner-employees face a different calculation. Salary is subject to FICA. Distributions are not. That gap creates an obvious incentive to pay a small salary and take the rest as distributions, and the IRS challenges it directly through the reasonable compensation requirement. An owner performing substantial services for a token salary is a well-established audit position, not a clever structure.

C corporation owner-employees are simply employees for this purpose. Salary carries FICA, dividends do not, but dividends come out of after-tax profit rather than reducing corporate income.

Who is actually exempt is narrower than you think

The exemption list circulating online is broader than the law.

Nonresident aliens are not generally exempt. A foreign national working as an employee in the United States pays FICA like anyone else. The genuine exemption is narrow, covering certain nonresident students, scholars, and trainees on specific visa categories while they remain nonresident for tax purposes. Applying a blanket nonresident exemption is a common and expensive error.

Students employed by the school they attend can be exempt from FICA on that employment, subject to conditions about enrollment and hours.

Certain religious objectors can apply for exemption through a specific IRS form, which requires the individual and in some cases the organization to meet defined conditions.

Some state and local government employees covered by a qualifying public retirement system sit outside Social Security under agreements between the state and the federal government, though Medicare generally still applies.

Everyone else pays. If you believe an employee is exempt, confirm the specific basis before you stop withholding, because the employer carries the liability if the position is wrong.

The bottom line

Treat FICA as a mechanical obligation with a fixed rate and no elections, because that is what it is. Check the current year's wage base rather than trusting a figure you have seen before. Withhold the additional Medicare tax at $200,000 of wages from your company and leave the filing-status thresholds to the employee's return. Watch the deposit schedule rather than the quarterly filing date, particularly around bonuses and equity vesting, since the accumulated liability rule can require a next-day deposit. And treat the employee's half as money you are holding rather than money you have, because unremitted amounts become a personal liability that outlives the company.

Frequently asked questions

What are the FICA tax rates?

Social Security is 6.2% from the employee and 6.2% from the employer, on wages up to an annual wage base that changes each year. Medicare is 1.45% from each side on all wages with no cap. Higher-paid employees also pay an additional 0.9% Medicare tax, which the employer withholds but does not match.

Does Form W-4 change how much FICA is withheld?

No. The W-4 governs federal income tax withholding only. FICA is a flat rate on wages with no allowances, filing status, or exemptions available through the form. An employee claiming exemption on a W-4 still has FICA withheld from every paycheck.

When does an employer withhold the Additional Medicare Tax?

Once an employee's wages from that employer exceed $200,000 in the calendar year, regardless of the employee's filing status or other income. The different thresholds for joint and separate filers apply on the employee's own return, not to employer withholding.

What happens if an employee hits the Social Security wage base at two jobs?

Each employer withholds up to the wage base independently, so the employee can have more withheld than they owe. The employer does not refund the excess. The employee claims it as a credit when filing their personal return.

Can the IRS come after me personally for unpaid payroll taxes?

Yes. The employee portion of FICA is trust fund money, and the trust fund recovery penalty equals 100% of the unremitted amount, assessable against owners, officers, and others responsible for paying it. It survives the company and is not dischargeable in bankruptcy.

Are nonresident employees exempt from FICA?

Usually not. A foreign national working in the United States as an employee generally pays FICA. The exemption is limited to certain nonresident students, scholars, and trainees on specific visa categories while they remain nonresident for tax purposes, and applying it more broadly leaves the employer liable.