FICA Taxes

How it works

1. 1. Separate income by FICA treatment

   Categorize income into W-2 wages (subject to FICA withholding), self-employment income (subject to SE tax), and FICA-exempt income (K-1 from S-Corp, investment income).

2. 2. Calculate Social Security tax

   W-2 wages and SE earnings are treated separately. Wages consume the wage base first at the employee rate (6.2%); SE earnings pay the combined employer + employee rate (12.4%) but only on the remaining wage base after wages are applied. This prevents double-counting when a taxpayer has both wages and self-employment income. The wage base is inflation-adjusted annually: $168,600 (2024), $176,100 (2025).

   Wages SS Tax = min(wages, wage base) × 6.2%
   Remaining base = max(0, wage base − wages)
   SE SS Tax = min(net SE earnings, remaining base) × 12.4%

3. 3. Calculate Medicare tax

   Medicare applies to all wages and net SE earnings with no wage base cap. The Additional Medicare Tax (0.9%) applies to total earned income above the filing-status threshold: $250,000 (MFJ) or $200,000 (Single/HOH). This threshold is not inflation-adjusted.

   Medicare Tax = wages × 1.45% + net SE earnings × 2.9%
   Additional Medicare Tax = max(0, total earned income − threshold) × 0.9%

4. 4. Apply SE tax deduction

   Self-employed individuals deduct 50% of SE tax (SS + base Medicare only) as an above-the-line adjustment on Schedule 1. The Additional Medicare Tax (0.9%) is excluded from this deduction base — only the standard SE FICA (12.4% SS + 2.9% Medicare) qualifies. The result is rounded to the nearest dollar.

   SE Tax Deduction = round((SE SS Tax + SE Medicare Tax) × 50%)
   Note: Additional Medicare Tax is NOT included in the deduction base.

5. 5. Sum total FICA liability

   Combine Social Security tax, Medicare tax, and Additional Medicare Tax. For employees, most is withheld; for self-employed, it's paid with estimated taxes or tax return.

   Total FICA Tax = Social Security Tax + Medicare Tax + Additional Medicare Tax

Worked example

**Step 1: Categorize Income**
- FICA wages (W-2): $120,000
- SE income (Schedule C): $80,000

**Step 2: Social Security Tax**
- SE income × 0.9235 = $80,000 × 0.9235 = $73,880
- Wage base consumed by W-2: $120,000
- Remaining wage base: $168,600 − $120,000 = $48,600
- Employee SS tax (withheld from W-2): $120,000 × 0.062 = $7,440
- SE SS tax (on remaining base): min($73,880, $48,600) × 0.124 = $48,600 × 0.124 = $6,026.40
- Total SS tax (employee + SE): $7,440 + $6,026.40 = $13,466.40
  (Note: employer matching SS tax is paid by the employer and is not calculated here)

**Step 3: Medicare Tax**
- Employee Medicare (withheld from W-2): $120,000 × 0.0145 = $1,740
- SE Medicare: $73,880 × 0.029 = $2,142.52
- Subtotal Medicare: $1,740 + $2,142.52 = $3,882.52

**Step 4: Additional Medicare Tax**
- Total earned income: $120,000 + $73,880 = $193,880
- Threshold (MFJ): $250,000
- Excess: $0 (below threshold)
- Additional Medicare Tax: $0

**Step 5: SE Tax Deduction**
- SE FICA paid: $6,026.40 (SS) + $2,142.52 (Medicare) = $8,168.92
- Deductible 50%: $8,168.92 × 0.50 = $4,084.46

**Result:**
- Total FICA calculated: $13,466.40 + $3,882.52 = $17,348.92
- SE tax deduction (reduces AGI): $4,084.46
      

Real-world context

What drives the result

Assumptions

• Social Security wage base: $168,600 (2024), $176,100 (2025); indexed annually for inflation
• When a taxpayer has both W-2 wages and SE income, wages consume the wage base first; SE earnings pay SS tax only on the remaining base
• Additional Medicare Tax threshold: $250,000 for MFJ, $200,000 for Single/HOH (not inflation-adjusted)
• Self-employed individuals multiply net SE income by 92.35% before applying SE tax rates (accounts for the employer-equivalent deduction)
• SE tax deduction = 50% of base SE FICA only (SS + Medicare at base rates); Additional Medicare Tax is excluded from the deduction base
• S-Corporation shareholders pay FICA only on reasonable W-2 compensation, not K-1 distributions

Limitations

• Does not model state disability insurance (SDI) or unemployment taxes
• Reasonable compensation determination for S-Corps requires professional judgment
• Does not account for FICA refunds when multiple employers over-withhold
• Additional Medicare Tax withholding may not match actual liability (requires Form 8959 reconciliation)
• K-1 income defaults to `'none'` for FICA purposes unless the Business Structure strategy sets the `businessStructure` field. Without that field, S-corp distributions, general-partner shares, and other K-1 items are uniformly excluded from FICA — which is correct for S-corp shareholders but understates SE tax for general partners. Use the Business Structure strategy to set the correct treatment when modeling partnership clients.

Related

• Federal Ordinary Income Tax — FICA taxes are separate from income tax but paid on same income sources
• Qualified Business Income (QBI) Deduction — QBI deduction based on qualified business income, same source as SE tax
• Social Security Benefit Calculation — FICA taxes paid during working years fund Social Security benefits in retirement