FICA and FUTA taxes are the two main federal payroll taxes. FICA funds Social Security and Medicare at a combined 15.3% rate, split evenly between employer and employee. FUTA funds the federal unemployment insurance system, is paid only by employers, and usually works out to about $42 per employee per year after state credits. For 2026, the Social Security portion of FICA stops applying once an employee’s wages hit $184,500; Medicare keeps going on every dollar.
What FICA Covers and Who Pays
FICA stands for the Federal Insurance Contributions Act. It funds two programs: Social Security, which pays retirement, survivor, and disability benefits, and Medicare, which covers hospital and related care for people 65 and older along with certain younger people with disabilities.1Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates
The total rate is 15.3% of gross wages. The employee pays 7.65% and the employer matches with another 7.65%.2Social Security Administration. Social Security and Medicare Tax Rates Each 7.65% share breaks into two pieces:
- Social Security at 6.2% from each side, combined 12.4%. This piece only applies up to the annual wage base, which is $184,500 for 2026. Wages above that threshold are free of Social Security tax. An employee earning at least the full base in 2026 contributes $11,439, and the employer matches it.3Social Security Administration. Contribution and Benefit Base
- Medicare at 1.45% from each side, combined 2.9%. There is no wage cap on Medicare, so every dollar of covered earnings is taxed.1Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates
Your employer withholds your 7.65% share from each paycheck and remits it to the IRS together with its matching share. You never touch the money.
The Extra 0.9% Medicare Tax for Higher Earners
An Additional Medicare Tax of 0.9% applies to high wages. Employers must start withholding it once an employee’s wages pass $200,000 in a calendar year, no matter how the employee will file.1Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates The actual liability thresholds on your return depend on filing status:
- Single filers: wages above $200,000
- Married filing jointly: combined wages above $250,000
- Married filing separately: wages above $125,000
The employer does not match the 0.9%. It falls entirely on the employee. Because the withholding trigger does not match the married-filing-jointly threshold, some joint filers end up overpaying through withholding and claim a credit on their return, while married-filing-separately filers may owe more at tax time.
What FUTA Covers and Who Pays
FUTA stands for the Federal Unemployment Tax Act. Unlike FICA, it is paid only by the employer. Nothing comes out of the worker’s paycheck.4Internal Revenue Service. Federal Unemployment Tax The revenue goes toward administering unemployment insurance at both federal and state levels and gives states a pool they can borrow from when their own unemployment accounts run short.5U.S. Department of Labor. Unemployment Insurance Taxes Fact Sheet
You become subject to FUTA if you paid $1,500 or more in wages during any calendar quarter, or if you employed at least one person for some part of a day in 20 or more different weeks during the year.6Office of the Law Revision Counsel. 26 U.S. Code 3306 – Definitions Most businesses with even one regular employee cross one of those lines.
The 6.0% Rate, the 5.4% Credit, and Credit Reduction States
The statutory FUTA rate is 6.0% on the first $7,000 of wages paid to each employee per year. Almost no employer actually pays that much. Employers who pay their state unemployment (SUTA) taxes on time receive a credit of up to 5.4% against the federal rate, which drops the effective FUTA rate to 0.6%, or a maximum of $42 per employee per year.5U.S. Department of Labor. Unemployment Insurance Taxes Fact Sheet
That credit can shrink in what the Labor Department calls credit reduction states. When a state borrows from the federal unemployment trust fund and does not repay the loan within two years, employers in that state lose part of the 5.4% credit.7U.S. Department of Labor. FUTA Credit Reductions A 1.2% reduction, for example, pushes an employer’s effective FUTA rate from 0.6% to 1.8%. The IRS publishes the affected states each fall, and the extra tax is reported on Schedule A of Form 940. Because the reduction is announced late in the year but applies to the full year’s wages, it can catch employers off guard.
If You Work for Yourself: SECA
Independent contractors and sole proprietors have no employer paying half of FICA. Instead, they pay the full equivalent through the Self-Employment Contributions Act, usually called SECA or self-employment tax. The combined rate is the same 15.3%: 12.4% for Social Security and 2.9% for Medicare.8Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes)
The 15.3% does not apply to your entire net profit. The taxable amount is 92.35% of net self-employment earnings, which mirrors the treatment W-2 employees get because the employer’s FICA share is not counted as their taxable wages.9Internal Revenue Service. Topic No. 554, Self-Employment Tax On $100,000 of net income, SE tax is calculated on $92,350. The same $184,500 Social Security wage base and the Additional Medicare Tax thresholds apply to self-employment income. You compute all of it on Schedule SE, filed with your Form 1040.10Internal Revenue Service. About Schedule SE (Form 1040), Self-Employment Tax
Because no one is withholding on your behalf, the IRS expects quarterly estimated payments on Form 1040-ES. The standard due dates are April 15, June 15, September 15, and January 15 of the following year.11Internal Revenue Service. Estimated Tax If a date falls on a weekend or federal holiday, it moves to the next business day. Underpaying or skipping these installments triggers an estimated tax penalty.
How Employers Report and Deposit
Employers report FICA withholding and their matching share quarterly on Form 941. FUTA is reported annually on Form 940, due January 31 of the following year; the IRS extends that by 10 days when all FUTA deposits were made on time during the year.12Internal Revenue Service. Depositing and Reporting Employment Taxes
FICA deposit frequency depends on your total tax liability during an IRS lookback period. Smaller employers typically deposit monthly, while larger payrolls deposit semi-weekly. All federal tax deposits must go through the Electronic Federal Tax Payment System (EFTPS).
FUTA runs on a simpler quarterly schedule. If your accumulated FUTA liability tops $500 in any quarter, deposit it by the last day of the following month. If it is $500 or less, carry it forward until the balance crosses $500.
Who Is Exempt
A few categories sit outside the normal rules:
- Students employed by the school they attend are not subject to FICA on that work, provided enrollment rather than the job is the primary purpose of the relationship.13Internal Revenue Service. Student Exception to FICA Tax
- Churches and certain church-controlled organizations can elect out of employer FICA by filing Form 8274, but only on religious grounds; their employees then pay self-employment tax on that income instead.14Internal Revenue Service. Elective FICA Exemption – Churches and Church-Controlled Organizations
- 501(c)(3) nonprofits are exempt from FUTA but still owe FICA on employee wages.15Internal Revenue Service. Section 501(c)(3) Organizations – FUTA Exemption
Some state and local government employees are covered by alternative retirement systems rather than Social Security, which changes their FICA treatment. Those rules are complex, and the employing agency is the right source for specifics.
Penalties for Paying Late
Payroll tax compliance is strict. Late deposits trigger penalties that escalate with how far behind you are:16Internal Revenue Service. Failure to Deposit Penalty
- 1 to 5 days late: 2% of the unpaid deposit
- 6 to 15 days late: 5%
- More than 15 days late: 10%
- After the IRS issues a notice demanding payment: 15%
The bigger risk is the Trust Fund Recovery Penalty. The 7.65% withheld from employee paychecks is considered trust fund money because the employer holds it on the government’s behalf. If a business fails to turn those amounts over, the IRS can pursue the individual who made the payroll decisions rather than just the business entity. Owners, officers, and even bookkeepers with check-signing authority can be held personally liable for the full unpaid amount plus interest.17Internal Revenue Service. Trust Fund Recovery Penalty The IRS reads “willful” failure broadly: choosing to pay vendors, rent, or other business expenses instead of remitting withheld taxes qualifies.