The Federal Insurance Contribution Act (FICA) consists of two taxes on employee wages – the Social Security tax at 6.2% and the Medicare tax at 1.45%. The total FICA rate is 15.3%, split equally between employer and employee contributions (7.65% each). High earners pay Additional Medicare tax, which is 0.9% of wages earned above $200,000 with no employer match required.
For 2025, the Social Security tax applies only to the first $176,100 of wages earned, while the Medicare tax has no wage limit. Employers are required to withhold the correct amount from their employees’ pay and forward it to the government. Failure to comply can result in significant penalties.
Tax treatment of health benefits
Group health insurance offered under a qualified section 125 cafeteria plan may be exempt from FICA taxes. Participating employees will see a reduction in their taxable wages because their contributions to the plan are made pretax. This provision reduces the FICA tax liability for employers, as well.
This guide is intended to be used as a starting point in analyzing FICA and is not a comprehensive resource of requirements. It offers practical information concerning the subject matter and is provided with the understanding that ADP is not rendering legal or tax advice or other professional services. Please consult your personal tax or legal advisor should you have specific questions related to your circumstance.
