FICA tax is the Social Security and Medicare tax taken from your paycheck

FICA stands for Federal Insurance Contributions Act. It is a payroll tax that funds two programs: Social Security and Medicare. Your employer takes FICA tax directly from your wages before you receive your paycheck, and your employer also pays a matching amount on your behalf.

FICA has two parts. The first part, Social Security tax, is 6.2 percent of your wages. The second part, Medicare tax, is 1.45 percent of your wages. If you are self-employed, you pay both the employee and employer portions, which totals 15.3 percent for Social Security and Medicare combined.

You cannot avoid FICA tax if you work. It applies to nearly all jobs in the United States, including W-2 employees, self-employed workers, and household employees. The only common exceptions are certain government employees hired before 1984 and some religious groups that have received a waiver.

Key Takeaways

  • FICA tax is split between Social Security (6.2 percent) and Medicare (1.45 percent), taken from your paycheck before you see it.
  • Your employer pays an equal amount on your behalf, so the total cost to fund these programs is double what appears on your pay stub.
  • Social Security tax stops once you reach a wage cap each year, but Medicare tax continues on all earnings above that cap.
  • Self-employed workers pay both the employee and employer portions of FICA, totaling 15.3 percent combined.
  • FICA taxes fund benefits you may receive later: Social Security retirement, disability, survivor benefits, and Medicare health insurance at age 65.

How Social Security tax and Medicare tax work differently

Social Security tax has a wage cap. In 2024, you pay Social Security tax only on the first $168,600 of your annual wages. Once you earn above that amount, no more Social Security tax is taken from your paycheck for the rest of that year. This cap changes each year based on average wage growth. Medicare tax has no cap — you pay 1.45 percent on all your earnings, no matter how much you make.

There is an additional Medicare tax of 0.9 percent that applies if your income exceeds certain thresholds. For single filers, this extra tax kicks in at $200,000 of wages. For married couples filing jointly, it starts at $250,000. This additional tax is withheld from your paycheck and goes to Medicare.

Both Social Security and Medicare taxes are withheld automatically by your employer. You can adjust how much is withheld by filling out a new W-4 form with your employer, though you cannot eliminate FICA withholding entirely — the law requires it.

Where FICA money goes and what it funds

Social Security tax funds three types of benefits: retirement benefits for workers age 62 and older, disability benefits for workers who cannot work due to a medical condition, and survivor benefits for the families of workers who die. When you pay Social Security tax, you are building a record of earnings that determines how much you may receive in benefits later.

Medicare tax funds health insurance for people age 65 and older, regardless of income or health history. It also covers some younger people with disabilities and people with end-stage renal disease. Medicare has four parts: Part A covers hospital stays, Part B covers doctor visits and outpatient care, Part D covers prescription drugs, and Part C is an alternative plan option.

Both programs operate on a pay-as-you-go system. The FICA taxes collected today from current workers fund benefits paid to current retirees and people receiving Medicare. This is why changes to the worker-to-beneficiary ratio — the number of workers paying in versus the number of people drawing benefits — affect the long-term solvency of both programs.

Why FICA appears on your pay stub as separate line items

Your pay stub breaks down FICA into separate line items so you can see exactly how much goes to Social Security and how much goes to Medicare. This transparency helps you understand where your money is going and makes it easier to track your earnings record, which Social Security uses to calculate your future benefits.

The Social Security Administration maintains an earnings record based on the FICA taxes you pay. You can view your record online through your Social Security account at ssa.gov. This record shows your reported earnings for each year and is used to calculate your Social Security benefit amount when you reach retirement age or become disabled.

Self-employed workers and FICA tax

If you are self-employed, you pay FICA tax through the self-employment tax system. You pay both the employee portion (6.2 percent for Social Security, 1.45 percent for Medicare) and the employer portion (another 6.2 percent for Social Security, another 1.45 percent for Medicare). This totals 15.3 percent of your net self-employment income.

You pay self-employment tax when you file your annual tax return using Schedule SE. You can deduct half of your self-employment tax as a business expense on your tax return, which reduces your overall tax burden slightly. The Social Security wage cap still applies — you only pay the 12.4 percent Social Security portion (employee and employer combined) on the first $168,600 of net self-employment income.

Self-employed workers should set aside money throughout the year to cover their FICA obligations, since no employer is withholding it automatically. Many self-employed people make quarterly estimated tax payments that include their FICA liability.

How FICA taxes affect your take-home pay

FICA taxes reduce your take-home pay directly. If you earn $1,000 in a week, approximately $76.50 goes to FICA taxes (6.2 percent plus 1.45 percent), leaving you with $923.50 before other deductions like federal income tax, state income tax, or health insurance premiums. Your employer also pays $76.50 on your behalf, but that money does not appear on your paycheck.

You cannot reduce or eliminate FICA withholding through your W-4 form. Federal income tax withholding can be adjusted, but FICA is mandatory. The only way to lower your FICA tax burden is to earn less income, which is not practical for most workers.

Understanding FICA helps you plan your budget and know what to expect on your paycheck. It also helps you understand how much you are contributing toward your future Social Security and Medicare benefits.

Frequently Asked Questions

Can I get a refund of FICA taxes I paid?

No. FICA taxes are not refundable. They fund Social Security and Medicare, which are insurance programs, not savings accounts. You cannot get back the money you paid in, but you may receive benefits from these programs later if you meet the requirements.

What happens to FICA taxes if I change jobs?

Your FICA taxes continue to be withheld at each job. The Social Security Administration combines all your earnings from all your jobs into one record. If you reach the Social Security wage cap at one job and then change jobs, your new employer will still withhold Social Security tax until you reach the cap again that year.

Do I pay FICA tax on tips?

Yes. Tips are considered wages and are subject to FICA tax. Your employer should withhold FICA taxes on tips you report to them. If you receive cash tips you do not report, you are still legally required to pay FICA tax on them when you file your tax return.

What if I work for a nonprofit or government agency?

Most nonprofit employees pay FICA tax just like private sector workers. Some state and local government employees are covered by different retirement systems and do not pay Social Security tax, though they may pay Medicare tax. Federal employees hired after 1983 pay FICA tax. Check with your employer's payroll department if you are unsure.