The U.S. government imposes both a federal income tax and a payroll tax, also known as FICA, on earnings paid to workers. The FICA tax goes toward the Social Security program and Medicare. Federal and FICA taxes have different rates as well as different purposes.
Federal Income Tax
The federal income tax uses a progressive system, with rates ranging from 10 to 39.6 percent in 2013. The more income you have, the higher your tax rate.
FICA Taxes
The FICA tax rate, encompassing both the Social Security tax and the Medicare tax, is 15.3 percent. This is split between employer and employee (6.2 percent Social Security each; 1.45 percent Medicare each).
FICA Types
For 2012, the Social Security tax of 12.4 percent is applied only to the first $110,100 of your payroll income. The Medicare tax of 2.9 percent is applied to all of your income.
FICA Considerations
For employees, the FICA taxes are split between the employee and the employer so each pays 7.65 percent. If you are self-employed or an independent contractor, you are responsible for paying the entire 15.3 percent yourself.
Self-Employment Tax Deduction
If you are self-employed or an independent contractor, you can deduct half your FICA taxes from your taxable income.
2013 Additional Medicare Tax
In 2013, an Additional Medicare Tax of .9 percent applies to compensation or self-employment income over $200,000 for single taxpayers, $250,000 for married filing joint taxpayers and $125,000 for married filing separate taxpayers.