FICA Guide for Small Businesses: Payroll Tax Basics
Learn how FICA works for employers: who pays Social Security and Medicare tax, the 2026 wage base, deposit and filing deadlines and penalties, in slides.
Last reviewed October 29, 2026 · General information, not legal advice
General information only, not legal advice. CPA Tax Payroll and Accounting Corp is a CPA firm, not a law firm. Laws change: confirm with the official source or a licensed attorney before you act. Read the full notice.
The Federal Insurance Contributions Act (FICA) is the federal law behind the Social Security and Medicare payroll taxes. An employer withholds the employee's share from each paycheck, adds a matching share of its own and sends both to the IRS. This guide is for owners of small businesses, nonprofits and practices that pay wages. Self-employed people pay the same taxes as self-employment tax.
Slide show: FICA in seven slides
What the law does
FICA pays for Social Security (6.2%) and Medicare (1.45%). The employee and the employer each pay these rates.
Who it covers
Every employer that pays covered wages. Self-employed people pay both halves: 15.3% of 92.35% of net earnings, with the Social Security part stopping at the wage base.
The rule
Withhold the employee share, add the employer match, then deposit by electronic transfer on a monthly or semiweekly schedule.
The numbers
The Social Security wage base is $184,500 for 2026 and $192,300 for 2027, announced in an SSA notice published October 26, 2026. Medicare has no cap, and an extra 0.9% is withheld from an employee's wages over $200,000.
The deadlines
Form 941 is due at the end of the month after each quarter. The third quarter of 2026 is due Monday, November 2, 2026, and W-2s for 2026 are due Monday, February 1, 2027.
The penalty
A late deposit costs 2%, 5%, 10% or 15%, depending on how late. A responsible person who willfully fails to pay over withheld tax can be charged the unpaid amount personally.
A practical tip
On Form 941 line 16 (monthly) or Schedule B (daily), report the tax owed on wages paid in each period, not the deposits made. A wrong entry can bring an averaged deposit penalty.
Who is covered
Group
How FICA treats it
Employer paying wages to employees
Withholds the employee share and pays an equal employer share
Corporate officer who works in the business
An employee of the corporation
Sole proprietor, partner or LLC member taxed as one
Not an employee; usually pays self-employment tax once net earnings reach $400
S corporation owner who works in the business
Wages carry employment tax; pay for services can be reclassified from distributions to wages
Child under 18 working for a parent's sole proprietorship or parents-only partnership
No FICA; it applies if the business is a corporation, an estate or a partnership with a non-parent partner
Household employee
FICA applies once cash wages reach $3,000 (2026)
How it touches your taxes and payroll
Withheld income tax plus the employee's FICA share are trust fund taxes, held for the government; the employer's matching share is the business's own cost. Worker status decides who gets a W-2 and who gets a Form 1099-NEC, which has a $2,000 reporting threshold for payments made in 2026 (indexed after 2026). Our contractor versus employee guide explains the control test. A payroll provider generally does not take over legal responsibility, except a certified professional employer organization. FICA sits inside the Internal Revenue Code; overtime rules fall under the separate FLSA.
