FICA Tax
The Federal Insurance Contributions Act payroll tax funding Social Security and Medicare, withheld from wages and matched by the employer.
Detailed Explanation
FICA combines Social Security tax (6.2 percent on wages up to $176,100 in 2025) and Medicare tax (1.45 percent on all wages, plus 0.9 percent Additional Medicare on wages above $200,000 single / $250,000 joint). Employers match the 6.2 and 1.45 percent components. Self-employed individuals pay both halves through Self-Employment Tax (SECA) on Schedule SE, with half deductible above the line. S-Corp shareholder-employees pay FICA on their reasonable W-2 wages but not on profit distributions, which is the central tax-saving rationale for S-Corp election.
Key Points
- Social Security: 6.2% on wages up to $176,100 (2025), matched by the employer (12.4% combined).
- Medicare: 1.45% on all wages, matched by the employer (2.9% combined), with no wage cap.
- Additional Medicare Tax: 0.9% on wages above $200,000 single / $250,000 joint (employee-only).
- The self-employed pay both halves via SECA on Schedule SE, deducting half above the line.
- S-corp distributions are not subject to FICA, the core rationale for the S-corp salary/distribution split.
Practical Example
An employee earning $100,000 has $6,200 of Social Security and $1,450 of Medicare withheld, and the employer matches both for $7,650, totaling $15,300 of FICA on those wages. An S-corp owner paying themselves $60,000 in salary and taking $40,000 in distributions pays FICA only on the $60,000 salary, saving roughly $6,000 versus running the full $100,000 through payroll.
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Self-Employment Tax
The Social Security and Medicare tax (15.3% combined) paid by self-employed taxpayers on their net earnings from self-employment.
Form W-2 (Wage and Tax Statement)
The annual statement employers provide to employees and the Social Security Administration reporting wages paid and federal, state, and local taxes withheld.
S Corporation
A pass-through tax election under Subchapter S of the Internal Revenue Code that avoids corporate double taxation while allowing shareholder-employees to reduce self-employment tax.
Schedule C (Profit or Loss from Business)
The federal tax form filed with Form 1040 to report income and expenses of a sole proprietorship or single-member LLC treated as a disregarded entity.
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