The Federal Insurance Contributions Act (FICA) is the United States federal law that requires a payroll tax on wages to fund Social Security and Medicare. The tax is split between the employee, whose share is withheld from each paycheck, and the employer, who pays a matching amount from its own funds. The combined money is sent to the Internal Revenue Service (IRS), which credits it to the Social Security and Medicare trust funds.
For accountants, FICA is one of the core components of payroll: it affects the amount withheld from employees, the employer's own payroll tax expense and the liabilities that sit on the balance sheet until the deposits are made. The acronym should not be confused with South Africa's Financial Intelligence Centre Act, an anti-money laundering law covered in the separate entry on FICA (Financial Intelligence Centre Act).
How FICA works
FICA has two parts. The Social Security portion, formally called Old-Age, Survivors and Disability Insurance (OASDI), is charged at 6.2 percent on the employee and 6.2 percent on the employer. It applies only up to an annual wage base, which is adjusted every year for average wage growth; for 2026 the limit is $184,500 of wages per employee. The Medicare portion, called Hospital Insurance, is charged at 1.45 percent on each side with no wage cap. An Additional Medicare Tax of 0.9 percent applies to the employee only, on wages above $200,000 in a calendar year, and the employer does not match it.
Self-employed people do not pay FICA as such. Instead they pay the equivalent Self-Employment Contributions Act (SECA) tax, which covers both the employee and employer halves, at a combined 15.3 percent on net earnings up to the wage base.
- Employee share: 6.2 percent Social Security plus 1.45 percent Medicare, a total of 7.65 percent of gross wages, plus the 0.9 percent additional tax where it applies.
- Employer share: a matching 7.65 percent, recorded as part of employer payroll taxes.
- Deposits: employers deposit withheld FICA together with income tax withholding on a monthly or semiweekly schedule and report it quarterly on Form 941, using their employer identification number (EIN).
Worked example
An employee earns $5,000 for a monthly pay period and has not yet reached the wage base. The calculation is:
Here is pay before deductions, 0.062 is the Social Security rate and 0.0145 is the Medicare rate. The employee's FICA is $5,000 times 0.0765, which equals $382.50: $310.00 of Social Security and $72.50 of Medicare. The employer owes the same $382.50 on top of the salary, so the total FICA sent to the government is $765.00. If the same person later earns past $184,500 in the year, the Social Security part stops for the rest of that year, but the Medicare part continues.
Journal entries and balance sheet effects
When payroll is recorded, the employee's FICA is not an expense of the business. It is money held on the employee's behalf, so it is credited to a liability such as FICA taxes payable, alongside federal income tax withholdings payable. The employer's matching share is an expense, debited to payroll tax expense and credited to the same liability. Both amounts remain current liabilities until the deposit is made, when the liability is debited and cash is credited. A typical journal entry for the example above debits salaries expense $5,000 and credits FICA payable $382.50 and cash or wages payable for the rest, followed by a separate entry for the employer share. Employer FICA is usually shown within operating expenses on the income statement.
A frequent error is treating withheld FICA as the company's own money. Because it is a trust fund tax, responsible officers can be held personally liable for unpaid amounts under the trust fund recovery penalty. Other mistakes include continuing Social Security withholding after an employee passes the wage base, forgetting to start the Additional Medicare Tax at $200,000, and leaving the employer match out of month-end accruals. FICA sits beside other payroll levies such as the federal unemployment tax (FUTA), which is paid only by the employer, and income tax withholding, which is entirely the employee's tax. IRS Publication 15, known as Circular E, sets out the current rates and deposit rules.