FICA & Medicare Tax Rates

FICA stands for the Federal Insurance Contributions Act, which was passed in 1935. The FICA tax includes two parts: the Social Security tax and the Medicare tax, which was added in 1966.

Function

The FICA tax applies only to earned income, such as wages or tips. Unearned income, such as interest and dividends, is exempt. The Medicare portion applies to all of your earned income while the Social Security portion is capped. As of 2010, the Social Security portion only applies to your first $106,800 of earned income.

Size

As of 2010, the FICA tax rate equals 15.3 percent. The Social Security portion of the FICA tax accounts for 12.4 percent and the Medicare tax portion accounts for 2.9 percent.

Considerations

Employees split the FICA tax with their employer, with each paying 7.65 percent. Self-employed individuals must pay the entire amount themselves.

References

• Money-zine: FICA Tax
• Social Security Administration: FICA and SECA Tax Rates
• IRS: What is Earned Income?