FICA is the tax that funds Social Security and Medicare
FICA stands for the Federal Insurance Contributions Act. It is the law that requires you and your employer to pay taxes that go into two programs: Social Security and Medicare. You see FICA taxes taken from your paycheck every time you get paid, and your employer sends their portion to the federal government on your behalf.
FICA is not optional. If you work as an employee, these taxes come out automatically. The amount is the same percentage for everyone, though the percentage changed slightly in 2024 and can shift year to year. Self-employed people pay both the employee and employer portions themselves.
The money does not sit in an account with your name on it. It goes into a shared pool that the government uses to pay current retirees, disabled workers, and people on Medicare. When you retire or become unable to work, you draw from that same pool.
Key Takeaways
- FICA taxes fund Social Security retirement benefits and Medicare health insurance for people 65 and older.
- Your employer withholds FICA from your paycheck and sends it to the federal government; self-employed people pay both portions themselves.
- Social Security tax has a wage cap — you stop paying it after you earn a certain amount each year — but Medicare tax does not.
- You can see your FICA contributions on your pay stub and on your Social Security statement, which shows how much you have paid over your lifetime.
How much FICA comes out of your paycheck
FICA has two parts: Social Security tax and Medicare tax. As an employee, you pay 6.2 percent of your gross wages for Social Security and 1.45 percent for Medicare. Your employer pays the same amounts on top of your salary. Together, that is 15.3 percent of your pay going to FICA — half from you, half from your employer.
Social Security tax only applies to the first $168,600 of your income in 2024. Once you earn that much in a year, no more Social Security tax comes out of your remaining paychecks. Medicare tax has no cap, so it continues on every dollar you earn, no matter how much you make.
If you earn more than $200,000 as a single filer (or $250,000 if married filing jointly), an additional 0.9 percent Medicare tax applies to the income above that threshold. This extra tax comes only from the employee portion; your employer does not pay it.
The difference between Social Security and Medicare portions
Social Security tax funds retirement benefits, disability benefits, and survivor benefits for your family if you die. When you turn 62, you can start drawing Social Security retirement income. The amount depends on how much you earned and how long you paid into the system. If you become disabled before retirement age, you can draw disability benefits. If you die, your spouse and children may receive survivor benefits.
Medicare tax funds health insurance for people 65 and older. It covers hospital stays, doctor visits, and some prescription drugs. You become may be able to access for Medicare at 65 regardless of whether you have retired, though you can delay it if you are still working and have employer coverage.
Both programs are separate funds with separate tax rates. You cannot choose to pay into one and not the other — FICA requires both if you are an employee.
Why FICA appears on your pay stub
Your pay stub breaks down every deduction from your paycheck. FICA usually appears as two line items: one for Social Security and one for Medicare. You might also see "OASDI" (Old-Age, Survivors, and Disability Insurance), which is another name for the Social Security portion.
The amount shown is what your employer withheld from your gross pay. Your employer also pays their portion, but that does not appear on your stub because it comes from the company's budget, not yours. Both portions go to the federal government.
If you are self-employed, you pay both the employee and employer portions yourself. This is called the self-employment tax, and it is higher than what a regular employee pays because you cover both sides.
How to track your FICA contributions over time
The Social Security Administration keeps a record of every dollar you have paid into Social Security and Medicare. You can view this record by creating an account at ssa.gov and accessing your Social Security Statement. The statement shows your earnings history year by year and an estimate of what your retirement benefit will be at different ages.
Your statement also shows how much you have paid in Social Security and Medicare taxes. This is useful if you want to understand how close you are to may have access to for benefits or if you need to verify your work history for any reason.
You can check your statement once a year for free. If you notice errors in your earnings history, you can contact Social Security to correct them. Errors can affect your benefit amount, so it is worth reviewing periodically.
What happens to FICA money after it is collected
The federal government collects FICA taxes and deposits them into two trust funds: the Social Security Trust Fund and the Medicare Trust Fund. Money from these funds pays current benefits to retirees, disabled workers, and Medicare recipients. Any money left over stays in the trust fund as a reserve.
This is different from income tax, which goes into the general Treasury and funds all government operations. FICA money is dedicated to these two programs only. If you pay more FICA than is needed in a given year, the surplus goes into the reserve. If benefits exceed collections, the reserve is drawn down.
The Social Security Trust Fund has faced questions about long-term solvency because the number of retirees is growing faster than the number of workers paying in. Congress periodically discusses changes to FICA rates or benefit formulas, but no changes have been made to current law.
FICA for self-employed people and contractors
If you are self-employed or work as an independent contractor, you pay self-employment tax instead of regular FICA. Self-employment tax is 15.3 percent of your net business income — you pay both the employee and employer portions yourself. This is roughly double what an employee pays on the same income.
You report self-employment tax on Schedule SE when you file your income tax return. You can deduct half of your self-employment tax as a business expense, which reduces your taxable income slightly. This deduction does not reduce the amount you owe; it just lowers your income tax liability.
If you have both W-2 income from an employer and self-employment income, you pay FICA on the W-2 income and self-employment tax on the net business income. The Social Security wage cap still applies, so if your combined income exceeds the cap, you stop paying Social Security tax on the excess.
Frequently Asked Questions
Can I opt out of paying FICA?
No. FICA is mandatory for all employees and self-employed people. The only exceptions are certain religious groups and some government employees hired before specific dates. If you work and earn income, FICA taxes apply.
Do I get FICA taxes back if I do not retire?
No. FICA is not a savings account. If you die before retirement age, your family may receive survivor benefits, but you do not get a refund of your contributions. Medicare benefits are available at 65 regardless of whether you retire.
What if I worked in multiple jobs during the year?
Each employer withholds Social Security tax up to the annual wage cap. If your combined income from all jobs exceeds the cap, you may have overpaid Social Security tax. You can claim a refund of the overpayment when you file your income tax return.
Does FICA apply to all types of income?
FICA applies to wages and self-employment income. It does not apply to investment income, rental income, or most other sources. Only earned income from work triggers FICA taxes.
How do I know if my FICA is being reported correctly?
Check your Social Security Statement at ssa.gov. It shows your earnings history and the FICA taxes paid each year. If you see errors, contact Social Security to request a correction. You can also compare your pay stubs to your W-2 form at the end of the year.