The two federal taxes that fund Social Security and Medicare

Two separate payroll taxes fund Social Security and Medicare. The Social Security tax is 6.2% of your wages (your employer pays another 6.2%), and the Medicare tax is 1.45% of your wages (your employer matches this too). If you're self-employed, you pay both the employee and employer portions yourself. These taxes appear on your pay stub as "FICA" — Federal Insurance Contributions Act — which is the law that created them.

The Social Security tax has a wage cap: in 2024, you only pay it on income up to $168,600. Once you earn more than that in a year, Social Security tax stops coming out of your paycheck. Medicare tax has no cap — it applies to all your wages, no matter how much you earn. High earners also pay an additional 0.9% Medicare tax on income above $200,000 (or $250,000 if married filing jointly).

Key Takeaways

  • Social Security tax is 6.2% of your wages up to $168,600 per year; Medicare tax is 1.45% of all wages with no income limit.
  • Social Security funds retirement, disability, and survivor benefits for workers and their families.
  • Medicare tax funds hospital insurance (Part A), which covers inpatient hospital stays, skilled nursing, and hospice care.
  • These taxes are mandatory for almost all workers, including self-employed people, and appear on your pay stub as FICA deductions.
  • Your employer pays an equal amount into these programs on your behalf, though you only see your own portion deducted from your check.

How Social Security tax is used

Social Security tax funds three types of benefits. Retirement benefits go to workers age 62 and older who have paid into the system. 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. Survivor benefits go to the spouse, children, and dependent parents of a worker who has died.

The amount you receive is based on your earnings history — the program calculates your benefit using your 35 highest-earning years. If you worked fewer than 35 years, zeros are factored in for the missing years, which lowers your benefit. You must have earned at least 40 work credits (roughly 10 years of work) to be insured for retirement or disability benefits.

Social Security is a pay-as-you-go system: the taxes collected from current workers fund the benefits paid to current retirees and beneficiaries. The program maintains a trust fund reserve, but the Social Security Administration publishes annual reports on whether incoming revenue will cover outgoing benefits in future years.

How Medicare tax is used

Medicare tax funds Part A, which is hospital insurance. Part A covers inpatient hospital stays (up to 100 days per benefit period), skilled nursing facility care, home health services, and hospice care. You become may be able to access for Medicare Part A at age 65 if you've paid Medicare tax for at least 10 years (or if you're receiving Social Security disability benefits).

Part A is funded entirely by the 1.45% Medicare tax you and your employer pay. The additional 0.9% Medicare tax on high earners also goes to Part A. Unlike Social Security, Medicare Part A is not means-tested — you receive it based on age or disability status, regardless of your income or savings.

Medicare Parts B, C, and D (doctor visits, prescription drugs, and private insurance options) are funded differently — through general tax revenue, premiums you pay, and cost-sharing. The payroll tax you see on your check funds only Part A hospital insurance.

Why these taxes are separate from income tax

Social Security and Medicare taxes are separate from federal income tax, even though they all come out of your paycheck. Income tax goes to the general Treasury and funds all federal spending — defense, roads, education, and everything else. FICA taxes are dedicated: they can only be used for Social Security and Medicare benefits and administration.

This separation matters because Congress cannot legally use Social Security or Medicare tax revenue for other purposes. If you see a pay stub that shows federal income tax, Social Security tax, and Medicare tax as three separate line items, that's the distinction in action. The rates and wage caps for FICA taxes are set by law and change only if Congress passes new legislation.

What happens if you change jobs or work multiple jobs

If you work for more than one employer in a year, each employer withholds Social Security tax on your full wages up to the annual cap. This means you could overpay Social Security tax if your combined earnings exceed $168,600. When you file your tax return, you can claim a refund for the overpayment — it appears as a credit on Form 1040.

Medicare tax does not have this problem because there is no wage cap. If you work multiple jobs, Medicare tax is withheld from all of them, and that's correct — you owe 1.45% on all your earnings.

Self-employed workers calculate both the employee and employer portions of FICA taxes on Schedule SE and pay them with their income tax return. You can deduct half of your self-employment tax as an adjustment to income, which reduces your taxable income slightly.

How to read your pay stub

Your pay stub shows gross pay (your total earnings before deductions), then lists deductions. Look for lines labeled "Social Security" or "OASDI" (Old-Age, Survivors, and Disability Insurance — the official name for Social Security), "Medicare," and "Federal Income Tax." The Social Security and Medicare lines are your FICA taxes.

If you're paid biweekly, multiply your Social Security deduction by 26 to estimate your annual Social Security tax. Do the same for Medicare. These numbers should roughly match 6.2% and 1.45% of your gross pay (adjusted for the wage cap on Social Security). If the numbers look wrong — for example, if Social Security tax is still being withheld after you've earned $168,600 — contact your payroll department to correct it.

Frequently Asked Questions

Can I opt out of paying Social Security and Medicare taxes?

No, with rare exceptions. Most workers must pay FICA taxes. The main exception is certain religious groups that have filed for exemption and don't receive Social Security or Medicare benefits. Federal employees hired before 1984 and some state and local government employees may be covered by different retirement systems instead.

What if I don't work long enough to get Social Security benefits?

You need 40 work credits (roughly 10 years of work) to receive retirement or disability benefits. If you fall short, you won't receive a benefit based on your own earnings record. However, you may be able to receive benefits as a spouse or survivor of someone who did work long enough.

Do I pay Medicare tax after I turn 65?

Yes. If you continue working after 65, you still pay Medicare tax on your wages. You become may be able to access for Medicare Part A at 65 regardless, but the tax continues as long as you're employed and earning wages.

Is the Social Security tax rate the same every year?

The 6.2% rate has been the same since 1990. However, the wage cap changes each year based on average wage growth. In 2024 it's $168,600; in 2023 it was $160,200. The Social Security Administration announces the new cap in October for the following year.

What if my employer doesn't withhold FICA taxes?

Report it to your employer when ready. They are legally required to withhold and pay these taxes. If they don't, you can file a complaint with the Department of Labor or the IRS. You remain responsible for these taxes even if your employer fails to withhold them.