What happens to the FICA tax rate when an employee earns over $200,000?

When an employee earns over $200,000, the FICA tax rate increases due to the Additional Medicare Tax. The standard Medicare tax rate is 1.45% on all earned income for both employees and employers. However, for wages exceeding the $200,000 threshold, there is an additional 0.9% tax that employees must pay. This increase is relevant only to the employee portion of the Medicare tax and does not impact the employer's contribution.

This structure is designed to ensure that higher earners contribute a larger share towards funding Medicare, reflecting the progressive nature of the tax system. Therefore, for individuals with earnings over this threshold, the effective tax rate on their income increases, making this option the correct choice.