How is social security and Medicare tax typically calculated as a percentage of income?

The calculation of Social Security and Medicare tax, commonly referred to as FICA (Federal Insurance Contributions Act) taxes, involves a specific percentage of an employee's income. The combined rate for these taxes is 7.65%. This consists of 6.2% allocated to Social Security and 1.45% to Medicare for employees. Employers match this amount, contributing the same percentages on behalf of their employees, making the overall contribution to FICA 15.3% when both employee and employer contributions are combined.

This percentage is established by federal law and may change based on legislative adjustments, but as of the data available up to October 2023, the 7.65% figure applies for most employees in the United States. Understanding this fundamental taxation structure is crucial for anyone involved in business or accounting, as it affects payroll calculations and employee compensation planning.