FICA deductions relate to the Federal Insurance Contributions Act. The tax provides for what is known as the Social Security and Medicare program today. FICA-HI tax is the Medicare component of the program. HI stands for hospital insurance. Both employees and employers contribute to Social Security and Medicare.


The FICA tax for Social Security was established in 1935, while the Medicare component was not included until 1965. Lyndon B. Johnson established the Medicare system due to the rising cost of health care.

Maximum Wages Taxable for FICA-HI

Unlike the Social Security tax (FICA-OASDI), FICA-HI does not have a maximum annual wage limit for taxing. All wages are subject to the 1.45 percent tax.

Exempt Individuals

The majority of employees are subject to FICA-HI taxes. There are, however, a few wage earners who are exempt. Exempt wage earners include:

  • Members of the clergy but not individuals who are employed by the clergy

  • Nonresident aliens in the United States on a F-1,J-1,M-1,Q-1 or Q-2 visa

  • Students in a work-study program with the school they regularly attend

  • Agricultural workers who earn less than $150 in cash wages for farm work or total wages for farm workers of less than $2,500.

Exempt Fringe Benefits

Certain fringe benefits are not included as wages subject to FICA-HI taxes. These include:

  • Accident and health benefits
  • Achievement awards*

  • Use of athletic facilities

  • Dependent care assistance*

  • Educational assistance*

  • Employee discounts*

  • Group-term life insurance coverage*

  • Health savings account contributions

  • Meals and lodging on the employer's premises for their convenience

  • Retirement planning services

  • Transportation and commuting benefits*

  • Tuition reduction

*Limited amounts apply

Individuals Eligible for Medicare

Though generally people 65 and older are eligible for Medicare, the program is also available to some people with disabilities under 65 and people of any age with end-stage renal disease.