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Learn how to figure out FICA taxes with this simple guide for employers. Understand rates, reporting rules, and how to claim back thousands with the FICA Tip Credit even if you’ve already filed.
If you’re an employer or small business owner, you’ve likely seen the acronym FICA pop up more times than you can count, on paycheck stubs, tax forms, payroll reports, and maybe even IRS notices. But what exactly is it? And more importantly, how do you figure out FICA taxes correctly so that you stay compliant, avoid penalties, and keep your business running smoothly?
The truth is, FICA isn’t just another line item on a paystub. It’s a critical piece of your payroll responsibilities. As an employer, you're legally required to calculate, withhold, and pay FICA taxes for every W-2 employee you hire. And whether you're running payroll yourself, using software, or working with a third-party provider, you should understand exactly how these numbers are calculated.
Getting it wrong by underreporting, overpaying, or missing deadlines can lead to IRS penalties, interest charges, and even audits. On the flip side, getting it right can help you avoid stress and may even uncover hidden opportunities for savings, especially if you operate in a tipped industry.
In this guide, we’re going to walk you through everything you need to know about how to figure out FICA taxes; what it is, how it’s calculated, and how you can confidently handle your payroll taxes like a pro.
Before we dive into the math, let’s take a quick look at what FICA really means and why it exists.
FICA stands for the Federal Insurance Contributions Act, a U.S. federal law that requires both employees and employers to contribute to two major government programs:
These contributions help fund essential social safety nets, and the law requires employers to split the tax burden with their employees.
When you pay your staff, you’re not just handing over their net paycheck—you’re also withholding a portion of their income for FICA taxes and adding your own matching contribution. This combined amount is sent to the IRS and allocated toward those two programs.
As an employer, it’s your responsibility to:
Failing to calculate FICA taxes correctly can lead to penalties, interest, and payroll audits, not to mention potential cash flow issues.
Now that we’ve covered the basics, let’s get into the steps.
To figure out FICA taxes, you first need to know the current tax rates. As of 2024:
Together, each employee’s wages are taxed at 15.3%, split evenly between the employee and employer.
Note: Employees earning more than $200,000 annually are subject to an additional 0.9% Medicare surtax, but employers do not have to match this extra tax.
Not all compensation is subject to FICA taxes. To correctly calculate what’s owed, you must first determine an employee’s taxable wages.
FICA applies to:
FICA does not apply to:
So, if an employee earns $1,500 in gross wages for the week and receives a $100 bonus, their total FICA-taxable income is $1,600.
Now that you know the taxable wages, it’s time to calculate how much to withhold from the employee’s paycheck.
Example:
Let’s say an employee earns $1,600 in a pay period. Here's the breakdown:
Total withheld from employee = $122.40
You’ll include this amount in your payroll withholding and remit it to the IRS on behalf of your employee.
You’ll now calculate your matching share as the employer. It’s the same percentage:
Total paid by employer = $122.40
So in total, for that one employee, the government receives $244.80 in FICA taxes; half from the employee, half from you.
You must report FICA taxes to the IRS quarterly using Form 941 (Employer’s Quarterly Federal Tax Return). This form summarizes:
Payments are generally due monthly or semi-weekly, depending on the size of your payroll. Timely deposits are critical to avoid penalties.
You’ll also report annual totals using Form W-2 for each employee and Form W-3 for the IRS.
If you’re in a tipped industry like restaurants, bars, or hospitality there’s an extra twist. You must include reported tips in taxable wages for FICA purposes.
That means:
Even though tips come from customers, not your business, the IRS still holds you responsible. This often results in employers overpaying without realizing there's a way to claim it back (more on that next).
If you're in the food and beverage industry and your employees receive tips, you may be eligible for the FICA Tip Credit under IRS Code §45B.
This credit allows you to get a refund on the employer portion of FICA taxes paid on tips potentially saving you thousands of dollars per year.
To qualify, your business must:
And yes, you can go back up to three years to reclaim unclaimed refunds.
Want help claiming it? [Start your free pre-qualification here].
When figuring out FICA taxes, avoid these frequent pitfalls:
❌ Forgetting to include tips in taxable wages
❌ Misclassifying employees as independent contractors
❌ Failing to withhold the correct Medicare surtax
❌ Missing deposit deadlines
❌ Overlooking FICA credits you’re eligible for
Proper calculation and reporting of FICA taxes helps you stay compliant and potentially uncover ways to improve your cash flow.
Learning how to figure out FICA taxes might feel intimidating at first, but once you understand the core pieces rates, taxable wages, and your responsibilities, it becomes a manageable part of your payroll process.
FICA taxes are more than just a line on a form. They affect every paycheck you issue and can significantly impact your financial planning. By getting it right and exploring available credits, you’re not just staying in the IRS’s good graces, you’re putting money back in your pocket where it belongs.
And if you’re in a tipped industry? Don’t let those extra taxes weigh you down. Let us help you claim back what’s yours through the FICA Tip Credit.
You’ve already done the work, served the guests, paid the taxes and reported the tips.
Now, let our full-service FICA Tip Credit Program handle the rest. No upfront cost. No red tape. Just results.
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