Social Security and Medicare Contributions
How Contributions are Calculated
The FICA (for Federal Insurance Contributions Act) tax (also known as Payroll Tax or Self-Employment Tax, depending on your employment status) is your contribution to Social Security and Medicare as a percentage of your salary:
If you're an employee, then you pay one half of this total (probably as a withholding on your paycheck);
your employer pays the other half for you (and then gets a deduction for their half on their corporate tax return, since it's an expense - for them it's as if the FICA "half" is an additional piece of salary).
If you're self-employed, then you pay the whole total yourself as Self-Employment tax, and then get a tax deduction on half of it as an "adjustment" on your tax return.
Now here's where it gets a little confusing.
What the previous paragraph shows is that being self-employed is like being an employee, but at a lower salary - lower by the FICA "half" that employers pay for their employees.
And so, if you're self-employed, you don't have to pay FICA on all your salary, just on 92.35% of it
(92.35 being 100 minus 7.65 - which is the contribution that your employer would have paid, if you had an employer, which you don't).
Additional Medicare Tax
Starting in 2013, people with high salaries will pay a new
additional Medicare tax of 0.9%.
Unlike the rest of Medicare, this new tax depends on your filing status:
If your filing status is...
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then the 0.9% tax applies
to salary above:
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Single
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$200,000
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Married filing jointly
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$250,000
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Married filing separately
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$125,000
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More Information
For much, much more on Social Security, see this official
history site,
which includes this table showing the contribution percentages since the program started in the 1930s.
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