FICA tax funds two federal insurance programs: Social Security and Medicare

FICA stands for Federal Insurance Contributions Act. The tax you pay under this law is split between two programs. Half of your FICA payment goes to Social Security, which provides retirement income, disability payments, and survivor benefits to workers and their families. The other half goes to Medicare, which covers hospital insurance, medical insurance, and prescription drug coverage for people 65 and older, plus some younger people with disabilities or end-stage renal disease.

You see FICA deductions on every paycheck if you work as an employee. Your employer also pays an equal amount on your behalf—you do not see this, but it counts toward your benefits. Self-employed people pay both the employee and employer portions themselves. The money does not sit in a personal account with your name on it. Instead, current workers' FICA payments fund current retirees and beneficiaries, and future workers will fund your benefits when you become may be able to access.

Key Takeaways

  • Social Security receives 6.2 percent of your wages (up to a yearly cap), and Medicare receives 1.45 percent, with your employer matching both amounts.
  • Social Security pays monthly retirement benefits starting at age 62, disability benefits if you become unable to work, and survivor benefits to your family if you die.
  • Medicare Part A covers hospital stays and skilled nursing care, Part B covers doctor visits and outpatient care, and Part D covers prescription drugs.
  • You build FICA credits by working and paying these taxes; you need 40 credits (roughly 10 years of work) to may have access to for Social Security retirement benefits.

How much of your paycheck goes to FICA

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 year, no more of your income goes to Social Security tax. Medicare tax is 1.45 percent of all your wages with no cap. If you earn over $200,000 (or $250,000 if married filing jointly), you pay an additional 0.9 percent Medicare tax on the amount above that threshold.

Your employer matches both percentages—6.2 percent for Social Security and 1.45 percent for Medicare—so the total FICA cost to employ you is 15.3 percent of your wages. If you are self-employed, you pay both the employee and employer share, which means 12.4 percent for Social Security (on earnings up to the cap) and 2.9 percent for Medicare. You can deduct half of your self-employment tax when you file your income tax return.

Social Security benefits funded by FICA

Social Security has three main benefit types. Retirement benefits are monthly payments you can start receiving at age 62, though waiting until your full retirement age (between 66 and 67 depending on birth year) or age 70 increases the amount. The benefit amount depends on your highest 35 years of earnings and how long you worked while paying FICA taxes.

Disability benefits go to workers under full retirement age who have a medical condition expected to last at least 12 months or result in death, and who have worked long enough to earn sufficient FICA credits. You do not have to be retired to receive them. Survivor benefits pay your spouse, children, and parents if you die, provided you had earned enough FICA credits at the time of death. A widow or widower can receive benefits as early as age 60, or at any age if caring for your child under 16.

Medicare benefits funded by FICA

Medicare Part A is hospital insurance, funded entirely by the Medicare portion of FICA. It covers inpatient hospital stays, skilled nursing facility care after a hospital stay, hospice care, and some home health services. You pay a deductible for hospital stays but no monthly premium for Part A if you or your spouse paid Medicare tax for at least 10 years.

Medicare Part B covers doctor visits, outpatient surgery, diagnostic tests, and other medical services. It is optional but recommended, and it requires a monthly premium (around $175 in 2024, though this varies by income). Medicare Part D is prescription drug coverage, also optional and also requiring a monthly premium. Together, these programs cover most routine medical expenses for people 65 and older, though you still pay copays, coinsurance, and deductibles depending on the service.

How FICA credits build toward your benefits

You earn FICA credits by working and paying these taxes. In 2024, you earn one credit for every $1,730 in wages you pay FICA tax on, up to a maximum of four credits per year. You need 40 credits—roughly 10 years of full-time work—to may have access to for Social Security retirement benefits. Disability and survivor benefits have different credit requirements depending on your age when you become disabled or die, but generally younger workers need fewer credits.

Your FICA payment history is tracked by Social Security using your Social Security number. You can view your earnings record and estimated benefits on the Social Security website using your personal account. If you spot an error—a missing year of earnings, for example—you can request a correction by contacting Social Security directly with documentation like old tax returns or W-2 forms.

What happens to FICA money after you pay it

FICA taxes go into two separate trust funds: the Old-Age and Survivors Insurance Trust Fund for Social Security, and the Hospital Insurance Trust Fund for Medicare Part A. These are not savings accounts where your money waits for you. Instead, the money collected from current workers pays current beneficiaries. When you retire, future workers' FICA payments will fund your benefits.

Both trust funds are managed by the Social Security Administration and the Centers for Medicare and Medicaid Services. Congress sets the tax rates and benefit amounts by law. If either fund runs low—which happens when there are more beneficiaries than workers paying in—Congress must decide whether to raise taxes, lower benefits, or draw from reserves. The Social Security trust fund is projected to have sufficient reserves until 2034, after which incoming tax revenue alone would cover about 80 percent of scheduled benefits unless Congress acts.

FICA tax for self-employed workers

If you are self-employed, you pay FICA tax through self-employment tax on your net business income. The rate is 15.3 percent total: 12.4 percent for Social Security (on net earnings up to the yearly cap) and 2.9 percent for Medicare (on all net earnings). You report this on Schedule SE when you file your income tax return.

Self-employed workers often overlook that they can deduct half of their self-employment tax as a business expense, which lowers their taxable income. You also build FICA credits the same way employees do, so the benefits you eventually receive are based on the same formulas. If you have both self-employment income and W-2 wages in the same year, Social Security counts the combined earnings toward your yearly cap.

Frequently Asked Questions

Can I get my FICA taxes back if I leave the country?

No. FICA taxes fund Social Security and Medicare, which are insurance programs, not savings accounts. You cannot withdraw your contributions. However, if you worked in the United States long enough to earn 40 credits, you may still receive Social Security retirement benefits even if you live abroad, though some countries have agreements that affect payment rules.

What if I did not pay FICA taxes for some years?

Social Security calculates your benefit using your highest 35 years of earnings. If you have fewer than 35 years of work history, zeros are counted for the missing years, which lowers your average. Working additional years can replace those zeros and increase your benefit amount. You need at least 40 credits total to may have access to for retirement benefits, regardless of gaps.

Do I pay FICA tax on all my income?

No. FICA applies only to wages from employment and self-employment income. It does not explore to investment income, rental income, or other sources. Additionally, the Social Security portion has a yearly earnings cap—in 2024, only the first $168,600 of wages is subject to the 6.2 percent tax. Medicare tax has no cap and applies to all wages.

Can I opt out of paying FICA taxes?

Generally, no. FICA is mandatory for all employees and self-employed people. A few exceptions exist: some religious groups, certain government employees hired before 1984, and some nonresident aliens may be exempt, but these are narrow categories. If you think you may have access to for an exemption, contact the Social Security Administration.

How do I know how much Social Security I will receive?

You can create a free account on the Social Security website to view your earnings record and see an estimate of your retirement benefit at different ages. The estimate is based on your current earnings history and assumes you continue working until the age you check. Your actual benefit will depend on when you claim and your final earnings record.