Highlights
- FICA and FUTA are federal taxes employers must withhold and pay.
- Staying compliant with these payroll taxes is crucial to avoid hefty penalties and ensure your employees receive the benefits they deserve.
- At Resource Employers, we simplify tax compliance for your business with our expert payroll and tax services. Contact us to learn how we can streamline your processes!
What are FICA and FUTA? Both are important federal payroll taxes that fund key government programs. FICA stands for Federal Insurance Contributions Act and funds Social Security and Medicare, providing benefits to retirees, people with disabilities, and those needing healthcare. FUTA stands for Federal Unemployment Tax Act and funds (you guessed it) unemployment benefit programs for workers who have lost their jobs.
For employers, accurately calculating and withholding taxes is critical for compliance and to avoid penalties. To simplify the process for you, let’s explore the key requirements and tax rates.
What Is FICA?
FICA, the Federal Insurance Contributions Act, is a mandatory U.S. tax paid by both employees and employers to fund Social Security and Medicare. Employers must withhold social security taxes from their employee’s paychecks and pay a matching amount to the IRS.
If you are an employer, you have two main responsibilities under FICA:
- Withhold the correct amounts of Social Security and Medicare taxes for your employees and send them to the government.
- Pay your matching share of these taxes.
For social security, this amount is 6.2% withheld from the employee’s wages, up to an annual wage cap of $176,100 per employee (for 2025 earnings). Employers also pay a matching amount, which makes for a total Social Security tax of 12.4%. This wage cap changes every year, so make sure to check the Social Security Administration website for the latest information.
For Medicare, the tax rate is 1.45% of your employee’s wages, with a matching amount from the employer, for a total of 2.9%.
How to Calculate FICA Tax?
Calculating FICA taxes involves two separate calculations, one for Social Security and one for Medicare:
- Social Security Tax Calculation: Multiply the employee’s taxable wages by 6.2%. Keep in mind that Social Security tax is only calculated on the first $176,100 earned by an employee during the year. If an employee’s earnings exceed this cap, no further Social Security tax is withheld or paid for the remainder of that year. So, for example, if an employee’s taxable income is $80,000, their Social Security tax would be $80,000 x 6.2% = $4,960.
- Medicare Tax Calculation: Multiply the employees’ gross wages by 1.45%. Unlike Social Security tax, there is no annual wage cap for Medicare tax. All earnings are subject to the Medicare tax. In this case, for an employee’s taxable income of $80,000, the Medicare tax would be $1,160 ($80,000 x 1,45%).
What Is FUTA?
FUTA, which stands for Federal Unemployment Tax Act, imposes a tax on employers that goes toward funding the administration of state workforce agencies and programs, as well as 50% of unemployment benefits. These programs include unemployment insurance.
FUTA rates are more complicated and less static than those for FICA.
As of 2025, the FUTA tax rate is 6.0% on the first $7,000 of gross earnings by a worker each year. This rate can be reduced by up to 5.4% through contributions to state unemployment programs (SUTA/SUI), which means the current minimum FUTA rate is 0.6%. However, the credit varies based on individual state regulations and other factors.
When Are FUTA Taxes Due?
FUTA taxes are typically paid to the U.S. government every quarter. The specific due dates for each quarter are as follows:
- 1st quarter: April 30
- 2nd quarter: July 31
- 3rd quarter: October 31
- 4th quarter: January 31 of the following year
However, if your FUTA tax liability is $500 or less in a quarter, you don’t have to deposit it right away. Instead, you can carry it forward to the next quarter.
FUTA Form 940: Reporting Futa Tax
Employers must report their annual FUTA tax liability to the IRS annually, using Form 940. This is a crucial part of complying with federal unemployment tax laws.
Who must file Form 940?
Most employers who pay wages are required to file Form 940. You must file if either of the following conditions is met:
- You paid wages of $1,500 or more in any quarter of a calendar year.
- You had one or more employees working for 20 or more different weeks in a calendar year.
When is Form 940 due?
The due date for Form 940 is January 31st of the following year.
Who Pays FUTA and Who Is Exempt?
FUTA is an employer-only tax; employees do not pay FUTA tax. This is a key difference between FUTA and other payroll taxes like Social Security and Medicare, which are shared between employers and employees.
While FUTA tax applies to most employers, there are some exceptions. Here’s a breakdown of who is exempt from FUTA:
- Employers with minimal wages (paid less than $1,500 in wages in any calendar quarter of the current or previous calendar year).
- Employers with no employees for at least some part of a day in 20 or more different weeks during the current or previous calendar year.
- Certain non-profit organizations, typically public charities.
- Household employers (with exceptions)
- Agricultural employers (with exceptions)
Simplify Tax Compliance with Employer’s Resource
As your business grows, staying compliant with ever-changing tax regulations can be overwhelming. But you don’t need to do it all by yourself.
At Employers Resource, we provide payroll processing and tax services to make payroll simple and stress-free for you, freeing you up to focus on higher-impact tasks for your business. We handle complex calculations, filings, and deadlines, ensuring your business remains compliant and avoids costly penalties.
Get a free quote today and see how we can streamline your payroll and tax processes!
FAQs
Who is Exempt from FICA Taxes?
While FICA taxes are generally mandatory for both employers and employees, there are certain limited exemptions. These exemptions typically apply to specific situations involving non-resident aliens (under certain visa categories and for a limited time), students employed by the schools they attend, members of certain religious orders who have taken a vow of poverty, and employees covered under the Railroad Retirement Tax Act.
Is FICA the same as Federal Income Tax?
No, FICA (Federal Insurance Contributions Act) and Federal Income Tax are different components of the U.S. tax system, though both are often withheld from paychecks. While FICA funds Social Security and Medicare programs, Federal Income Tax funds a much broader range of government operations. Besides serving different purposes, they both have unique tax structures. FICA tax is a flat percentage of earnings up to a certain cap, split evenly between the employee and employer. Federal Income Tax uses a progressive tax system, meaning higher incomes are taxed at higher rates, and allows for various deductions and exemptions to reduce the taxable amount.
FUTA vs SUTA: What’s the Difference?
We’ve already explored FUTA, which plays a vital role in the unemployment insurance system at the federal level. However, each state also has its own unemployment tax and program, known as SUTA (State Unemployment Tax Act).
While FUTA provides a foundation and support, SUTA directly funds unemployment benefits for workers within a specific state. SUTA tax rates and regulations vary from state to state, so you need to be aware of specific requirements in the states where you have employees.
