3.2 Social Security, Medicare, and Additional Medicare

The FICA Framework

The Federal Insurance Contributions Act (FICA) covers Social Security and Medicare taxes on wages. For payroll, the first task is not multiplication; it is deciding what wages are subject to each tax. Federal income tax wages, Social Security wages, and Medicare wages can be different because exclusions and pretax deductions do not always apply to every tax.

For current 2026 operations, IRS Publication 15 lists Social Security tax at 6.2% for the employee and 6.2% for the employer, up to the 2026 Social Security wage base of $184,500. Medicare tax is 1.45% for the employee and 1.45% for the employer, with no wage base limit. The Social Security Administration confirms the taxable maximum is $176,100 for 2025 and $184,500 for 2026. For FPC candidates in 2026, pair those current facts with PayrollOrg's exam-law rule: exams through September 4, 2026 are based on January 1, 2025 federal law; exams after September 5, 2026 are based on January 1, 2026 law.

Additional Medicare Tax

Additional Medicare Tax is a common FPC trap because it is not shared. The employer must withhold an extra 0.9% from wages paid to an employee in excess of $200,000 in a calendar year. Payroll starts in the pay period when wages exceed $200,000 and continues for the rest of the year. The employer does not match this extra 0.9%, and payroll does not adjust the $200,000 withholding threshold for married, single, or head-of-household filing status. The employee's final liability may differ on the income tax return, but the employer withholding trigger is the employer-paid wage threshold.

Wage base example

Assume an employee has $181,000 in 2026 year-to-date Social Security wages before a $7,000 bonus. Only $3,500 of the bonus is below the $184,500 Social Security wage base, so Social Security withholding on the bonus is $217.00, calculated as $3,500 times 6.2%. The full $7,000 remains Medicare wages, so regular Medicare withholding is $101.50. If the bonus also causes this employer's year-to-date wages to exceed $200,000, Additional Medicare applies only to the wages above that threshold, not to the whole bonus unless the whole bonus is above the threshold.

Taxable wages are not always gross wages

The exam likes deductions because they expose whether candidates understand tax bases. A qualified Section 125 cafeteria plan deduction for health coverage often reduces federal income tax wages and FICA wages. A traditional 401(k) elective deferral generally reduces federal income tax wages but remains subject to Social Security and Medicare. Roth 401(k) contributions are after-tax for income tax and generally do not reduce FICA. Taxable fringe benefits, such as personal use of an employer vehicle or group-term life insurance over the exclusion threshold, may add wages even when no cash is paid.

A careful payroll calculation therefore follows this order: identify gross earnings, add taxable noncash benefits, subtract only deductions that are excluded for the specific tax, apply annual wage bases and thresholds, then compute employee and employer tax. Do not reuse federal income tax taxable wages as the Social Security base without checking the benefit or deduction rule.

Employer controls and corrections

FICA is a trust-tax area. Employee shares withheld from wages and employer shares owed by the employer must reconcile to Form 941, payroll registers, deposits, and the general ledger. If a system fails to stop Social Security at the wage base, the overwithholding may need correction and refund procedures. If a system fails to start Additional Medicare at the $200,000 threshold, payroll must correct withholding as allowed and report the proper amounts. Rounding differences can occur because tax is figured paycheck by paycheck, but those should be small and supported by payroll records.

Compliance traps

• A worker claiming FIT exemption on Form W-4 is still subject to Social Security and Medicare when wages are covered.
• The employer match applies to regular Medicare but not to Additional Medicare Tax.
• Multiple employers do not combine wages for the Social Security wage base at each employer's payroll desk; each employer applies the wage base to its own paid wages unless successor-employer rules apply.
• A deduction labeled pretax in the benefits system must still be checked tax by tax.

Balancing the employee and employer sides

For an FPC calculation, always write two columns: employee withholding and employer tax. Social Security and regular Medicare usually appear in both columns at the same rate, while Additional Medicare appears only in the employee column. That simple worksheet catches several errors at once.

9%, prevents payroll from stopping Medicare when Social Security reaches its cap, and forces the preparer to compare quarter-to-date taxable wages with Form 941 lines. In a real payroll department, the same split also supports accounting entries: employee FICA is a withheld liability, employer FICA is employer payroll tax expense, and both must clear through deposits.

Source checkpoints: IRS Publication 15, IRS Topic No. 751, SSA contribution and benefit base, and PayrollOrg 2026 preparation PDF.