What Is FICA and FUTA? Rates, Wage Base, and Employer Filing

FICA and FUTA taxes are the two federal payroll taxes almost every U.S. employer has to handle. FICA funds Social Security and Medicare, costs 15.3% of wages, and is split evenly between employer and employee. FUTA funds federal unemployment insurance, is paid only by the employer, and usually works out to about $42 per employee per year after credits.

What Each Tax Pays For

FICA stands for the Federal Insurance Contributions Act. The money funds two programs: Social Security, which pays retirees, surviving spouses and children, and disabled workers; and Medicare, which covers hospital and related care for people 65 and older and certain younger people with disabilities.¹ These contributions are earmarked. They don’t flow into the general fund the way income tax does, and your lifetime earnings record determines the benefits you eventually collect.

FUTA stands for the Federal Unemployment Tax Act. It pays to administer the unemployment insurance system at both the federal and state level and provides a reserve that states can borrow from when their own unemployment accounts run short.² Employees never see FUTA on their pay stubs because employers pay all of it.³

FICA Rates and the 2026 Wage Base

The combined FICA rate is 15.3% of gross wages. The employee pays 7.65% out of each paycheck, and the employer pays a matching 7.65%.⁴ Each 7.65% share is really two separate taxes.

Social Security is 6.2% from the employee and 6.2% from the employer, for a combined 12.4%. It applies only up to the annual wage base, which is $184,500 in 2026. Wages above that threshold aren’t subject to Social Security tax at all. An employee who earns at least $184,500 in 2026 will contribute $11,439, and the employer will match it.¹⁵

Medicare is 1.45% from the employee and 1.45% from the employer, for a combined 2.9%. There’s no wage cap. Every dollar of covered earnings is subject to Medicare tax.¹

Employers withhold the employee’s share from each paycheck and send it in with their own matching contribution. The employee never touches the money.

Additional Medicare Tax for Higher Earners

An extra 0.9% Medicare surtax applies on top of the standard 1.45%. Employers must start withholding it once an employee’s wages pass $200,000 in a calendar year, no matter how the employee will file.¹ The actual liability thresholds on the 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

Employers do not match the 0.9%. It’s entirely on the employee. Because the withholding trigger and the joint filing threshold don’t match, some couples overwithhold and claim a credit when they file, while some married-filing-separately filers still owe more.

FUTA Rate, the Credit, and Credit Reduction States

The statutory FUTA rate is 6.0% on the first $7,000 of wages per employee per year. Almost no one pays that rate. Employers who pay their state unemployment (SUTA) taxes on time get a credit of up to 5.4% against the federal rate, which drops the effective FUTA rate to 0.6%.² At 0.6% on $7,000, the maximum FUTA cost is $42 per employee per year.

The 5.4% credit can shrink in what the Labor Department calls credit reduction states. When a state borrows from the federal unemployment trust fund and doesn’t repay within two years, employers in that state lose part of the credit.⁶ A 1.2% reduction, for example, pushes your effective FUTA rate from 0.6% to 1.8%. The IRS publishes the affected states each fall, and the additional amount is reported on Schedule A of Form 940. The change applies retroactively to the entire year, which catches some employers off guard.

Who Actually Owes FUTA

You become subject to FUTA if you paid $1,500 or more in wages in 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.⁷ Most businesses with even one regular employee meet one of those tests.

One category is carved out: 501(c)(3) tax-exempt organizations don’t owe FUTA at all. They still owe FICA on employee wages.⁸

If You’re Self-Employed

Independent contractors and sole proprietors don’t have FICA taxes taken out because there’s no employer to split with. Instead, they pay the equivalent under the Self-Employment Contributions Act, or SECA. The rate is the full 15.3% (12.4% Social Security plus 2.9% Medicare), and the self-employed person owes both halves.⁹

The tax isn’t applied to all of your net profit. You calculate it on 92.35% of net self-employment earnings, which parallels the wage treatment for W-2 employees (whose employer FICA share isn’t counted as their taxable wages).¹⁰ So $100,000 of net self-employment income produces SE tax on $92,350. The $184,500 Social Security wage cap and the Additional Medicare Tax thresholds still apply.

You can deduct half of the self-employment tax you pay when figuring your adjusted gross income. That deduction lowers your income tax, not your SE tax.⁹ The calculation goes on Schedule SE, filed with Form 1040.¹¹

How Employers Report and Deposit These Taxes

FICA withholding and the employer match are reported on Form 941, filed quarterly.¹² FUTA is reported separately on Form 940, filed annually. Form 940 is due January 31 of the following year, and the IRS extends the deadline by 10 days if every FUTA deposit was made on time throughout the year.

Deposit timing for FICA depends on the IRS-assigned schedule, either monthly or semi-weekly, based on your total tax liability during a lookback period.¹² Smaller employers usually deposit monthly; larger payrolls run on the semi-weekly schedule. All federal deposits must go through the Electronic Federal Tax Payment System (EFTPS).

FUTA runs on a simpler quarterly cadence. When your accumulated FUTA liability exceeds $500 in any quarter, deposit it by the last day of the following month. If it’s $500 or less, roll it forward until you cross the threshold.

Penalties for Late or Missing Payments

The IRS penalizes late payroll deposits on a sliding scale based on how late they are:¹³

1 to 5 days late: 2% of the unpaid deposit
6 to 15 days late: 5%
More than 15 days late: 10%
After an IRS notice demanding payment: 15%

The bigger risk is the Trust Fund Recovery Penalty. The employee’s 7.65% share of FICA is considered trust fund money because the employer is holding it on the government’s behalf. If a business fails to turn those amounts over, the IRS can pursue the individual responsible for payroll decisions personally, not just the business itself. An officer, owner, or bookkeeper with check-signing authority can become liable for the full amount of unpaid trust fund taxes plus interest.¹⁴ The IRS reads “willful” broadly. Paying vendors, rent, or other business expenses instead of remitting withheld taxes qualifies.

1
Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates
2
U.S. Department of Labor. Unemployment Insurance Taxes Fact Sheet
3
Internal Revenue Service. Federal Unemployment Tax
4
Social Security Administration. Social Security and Medicare Tax Rates
5
Social Security Administration. Contribution and Benefit Base
6
U.S. Department of Labor. FUTA Credit Reductions
7
Office of the Law Revision Counsel. 26 U.S. Code 3306 – Definitions
8
Internal Revenue Service. Section 501(c)(3) Organizations – FUTA Exemption
9
Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes)
10
Internal Revenue Service. Topic No. 554, Self-Employment Tax
11
Internal Revenue Service. About Schedule SE (Form 1040), Self-Employment Tax
12
Internal Revenue Service. Depositing and Reporting Employment Taxes
13
Internal Revenue Service. Failure to Deposit Penalty
14
Internal Revenue Service. Trust Fund Recovery Penalty