Running a business is an exhausting challenge, but few responsibilities are as critical as staying compliant with small business payroll taxes (FICA). If you hire staff in the U.S., understanding FICA tax is not just good accounting; it’s a legal requirement.

Tax thresholds have changed as we are in 2026. This guide simplifies FICA tax rates for 2025/2026 and explains employer obligations, so you can remain compliant.

What Is FICA Tax?

FICA is an abbreviation that means Federal Insurance Contributions Act. It is a required payroll tax that finances two critical federal programs:

1. Social security: It offers the disabled and retirees’ income.
2. Medicare: Health insurance for individuals aged 65 and older.

FICA is a flat percentage, as opposed to federal income tax, which is a percentage but varies by individual. It is both employee and employer FICA contribution; both parties contribute equally in financing these programs.

FICA Tax Rates for 2026

The percentages are constant in the 2026 tax year, but the amount of the wage limit (the income limit) has increased.

The 2026 Social Security Wage Base

The FICA tax threshold 2026 for Social Security is $184,500.

• You must withhold 6.2% of an employee’s wages up to the first $184,500.
• When they make more than this, you cease withholding of Social Security in the year.
• No maximum on Medicare tax; it is imposed on all earnings.

The Medicare Surtax

Those who earn a high income pay an additional 0.9% Medicare tax. Employers are required to withhold this surtax from employees whose wages exceed $200,000. Importantly, this 0.9% surtax applies only to employees and is not matched by employers.

How to Calculate FICA Taxes: A Quick Example

We can take an example of the FICA tax on small businesses. Suppose your employee earns 2,000 dollars during a pay period. It is the following:

• Social Security (6.2%): $124.00
• Medicare (1.45%): $29.00
• Total Withheld from Employee: $153.00
• Total Employer Match: $153.00
• Total IRS Deposit: $306.00

FICA Tax Employer Obligations

In order to stay within payroll tax compliance, it would be required to adhere to certain IRS FICA requirements. Your main duties include:

• Withholding: Deducting the right employee's FICA from each check.
• Matching: Ensuring your business pays the employer’s share of FICA.
• Depositing: This is done through the Electronic Federal Tax Payment System (EFTPS), which is used to transfer money to the IRS.
• Reporting: FICA wages are to be reported on Form 941 (quarterly) or Form 944 (annually).

FICA vs. FUTA vs. Federal Income Tax

Small business payroll taxes are confusing. The difference can be remembered in a very simple manner:

• FICA: Shared by employee and employer. Funds Social Security/Medicare.
• FUTA: Paid only by the employer. Funds for unemployment.
• Federal Income Tax: Paid only by the employee. Based on their W-4 form.

Common FICA Tax Exclusions and Exemptions

Are small businesses obliged to pay FICA to all workers? Not always. Typical FICA tax exemptions would be:

• Partners: Sometimes the self-employment tax is paid, rather than FICA.
• Students: Some student workers at qualifying universities may be exempt from FICA.
• Retirement Contributions: Contributions made by employers to a 401(k) are usually not FICA.

How to Reduce Payroll Tax Errors

Usually, businesses can have FICA penalties for late payment or missed payments. To keep your business safe, follow this tax compliance checklist:

1. Correct Classification: Do not make a mistake in classifying an employee as a contractor to evade FICA.
2. Double-Check Math: Use taxable wages totals to verify your 6.2% and 1.45% calculations.
3. Watch the Calendar: Set alerts for payroll tax deadlines and W-2 reporting dates.

Why Consider Outsourced Payroll Software?

FICA tax management for employers in 2026 takes a lot of time. Most of the owners opt to use an outsourced payroll tax service to ease the burden. A small business tax filing service takes care of the math, the deadlines, and the payroll tax filing services on your behalf.

By using payroll software such as PayProNext, owners can ease their burden and ensure compliance is met, and they will never miss the deadline again, so they can concentrate on growing the business and not doing the paperwork.

Final Thoughts for 2026

FICA is a significant portion of your employer taxes. Knowing the Social Security tax rate and keeping a watch on the Social Security wage base will help you to avoid the "surprises" many owners get caught in if they are off guard.

Staying informed about FICA tax ensures compliance and avoids costly mistakes.