FICA taxes are the Social Security and Medicare deductions taken from your paycheck

FICA stands for Federal Insurance Contributions Act. It is the law that requires your employer to withhold money from your paycheck for two programs: Social Security and Medicare. You will see these deductions on every pay stub if you work as an employee. The money does not go into a personal account with your name on it — it goes into a federal trust fund that pays benefits to current retirees and disabled workers, and covers hospital insurance for people over 65.

FICA taxes are separate from federal income tax, which is also withheld from your paycheck. Many people confuse the two because they appear on the same stub. Income tax goes to the general Treasury. FICA taxes go only to Social Security and Medicare, and the rate is fixed by law rather than based on your income bracket.

Key Takeaways

  • FICA taxes fund Social Security retirement benefits and Medicare hospital insurance, and are withheld automatically from employee paychecks.
  • The Social Security portion is 6.2 percent of your gross pay (up to a yearly earnings cap), and the Medicare portion is 1.45 percent with no cap.
  • Your employer matches the amount you pay, so the total FICA cost to your employer is double what appears on your stub.
  • Self-employed people pay both the employee and employer share, which is called self-employment tax and is calculated on Schedule SE.
  • FICA taxes are mandatory for nearly all workers, including teenagers and part-time employees, though some government workers and religious groups have exemptions.

How much FICA tax comes out of your paycheck

The Social Security portion of FICA is 6.2 percent of your gross wages, but only up to a yearly earnings cap. In 2024, that cap is $168,600 — meaning once you earn that much in a calendar year, no more Social Security tax is withheld. The cap changes each year based on wage growth. Medicare tax is 1.45 percent of your gross wages with no earnings cap, so it continues no matter how much you make.

Together, these two make up 7.65 percent of your paycheck before any other deductions. If you earn $2,000 in a pay period and have not hit the Social Security cap that year, your FICA withholding is $153 (6.2 percent for Social Security plus 1.45 percent for Medicare). This amount is separate from federal income tax withholding, state income tax, and any voluntary deductions like health insurance premiums.

There is also an additional Medicare tax of 0.9 percent that applies if your income exceeds certain thresholds — $200,000 for single filers and $250,000 for married couples filing jointly. This extra tax is withheld by your employer if you cross the threshold, and you may owe more when you file your tax return if you have multiple jobs or other income sources.

Why your employer pays FICA tax too

For every dollar of FICA tax withheld from your paycheck, your employer must contribute an equal amount. This is called the employer match. So if you pay $153 in FICA taxes, your employer pays another $153 on your behalf — a total of $306 going into the Social Security and Medicare trust funds. This employer contribution does not appear on your pay stub as a deduction because it comes from the employer's side of the payroll, not from your wages.

The employer match is a real cost to the business, but it is not something you can opt out of or reduce. It is built into the payroll tax system and applies to nearly all employers. Some very small employers may have limited exemptions, but the vast majority must pay it for every employee on their payroll.

Self-employed workers and FICA taxes

If you are self-employed, you pay both the employee and employer share of FICA taxes yourself. This is called self-employment tax and is calculated using Schedule SE, which you file with your federal income tax return. The self-employment tax rate is 15.3 percent (12.4 percent for Social Security up to the earnings cap, plus 2.9 percent for Medicare), which is double the employee rate because you are covering both sides.

Self-employed income includes money from a sole proprietorship, partnership, or S-corporation, as well as certain rental income and farm income. You calculate self-employment tax on your net profit after business expenses. You can deduct half of your self-employment tax as an adjustment to income on your tax return, which provides some offset to the higher rate.

Who has to pay FICA taxes

Nearly all workers in the United States pay FICA taxes, including teenagers working part-time jobs, immigrants with work authorization, and employees of nonprofits and religious organizations. There are narrow exemptions: some government employees hired before specific dates, members of certain religious groups that have filed for exemption, and some foreign government employees working in the United States.

If you are unsure whether your job is covered by FICA, check your pay stub — if you see Social Security and Medicare deductions, you are paying FICA taxes. Your employer is required to withhold these taxes and report them to the Social Security Administration, which keeps a record of your earnings history.

How FICA taxes connect to your future benefits

The FICA taxes you pay now create a record of earnings with the Social Security Administration. When you reach retirement age (currently 67 for people born in 1960 or later, though it varies by birth year), you can claim Social Security retirement benefits based on your earnings history. The amount you receive depends on how much you earned and how long you worked, not on how much FICA tax you paid.

Medicare coverage at age 65 is also tied to your FICA tax history. You need at least 40 quarters of coverage (roughly 10 years of work) to be covered by Medicare Part A, which is hospital insurance. The Medicare tax you pay throughout your working life funds this program, though like Social Security, the benefit you receive is not a direct return of what you paid in.

FICA taxes on different types of income

FICA taxes explore to wages, salaries, and tips. They also explore to certain other forms of compensation: bonuses, commissions, vacation pay, and sick pay all count as wages for FICA purposes. If you receive a large bonus, your employer will withhold FICA taxes on it just as they do on regular pay.

Some types of income are not subject to FICA taxes. Investment income like dividends and capital gains, rental income (with some exceptions), and income from certain types of work — such as work done as an independent contractor for a business that does not issue a W-2 — may not be subject to FICA withholding. However, self-employed people with net earnings of $400 or more must pay self-employment tax on that income, which is the self-employed version of FICA.

Frequently Asked Questions

Can I opt out of paying FICA taxes?

No. FICA taxes are mandatory for nearly all employees and self-employed workers. The only way to avoid them is to fall into one of the narrow exemptions — such as being a member of a recognized religious group that has filed for exemption — or to have no earned income. You cannot choose to stop FICA withholding on your paycheck.

What happens if my employer does not withhold FICA taxes?

Your employer is legally required to withhold FICA taxes and send them to the federal government. If they fail to do so, you can report it to the Department of Labor or the IRS. You are still responsible for paying your share of FICA taxes even if your employer does not withhold them, so contact a tax professional or the IRS if you believe your employer is not complying.

Do FICA taxes go into a personal account with my name on it?

No. FICA taxes go into federal trust funds that pay current beneficiaries. There is no individual account or savings account in your name. Your earnings are recorded by the Social Security Administration, and that record determines your future benefit amount, but the money you pay in does not sit in a dedicated account waiting for you to retire.

Why do I pay FICA taxes if I will not retire for decades?

FICA taxes fund benefits for current retirees and disabled workers, not just future retirees. The system is pay-as-you-go: current workers fund current beneficiaries. When you retire, future workers will fund your benefits. FICA also covers disability benefits and survivor benefits for families of deceased workers, not just retirement income.

Does the Social Security earnings cap mean rich people pay less FICA tax?

Yes, as a percentage of total income. Someone earning $168,600 pays 6.2 percent Social Security tax on all their income, but someone earning $500,000 pays 6.2 percent only on the first $168,600 and zero on the remaining $331,400. However, they still pay the 1.45 percent Medicare tax on all earnings, plus the additional 0.9 percent Medicare tax if they exceed the income threshold.