FICA is a federal payroll tax that funds Social Security and Medicare

FICA stands for the Federal Insurance Contributions Act. It is a payroll tax taken directly from your wages, and your employer matches what you pay. The money funds two programs: Social Security (retirement, disability, and survivor benefits) and Medicare (health insurance for people 65 and older, and some younger people with disabilities).

When you see "FICA" on your pay stub, it is usually broken into two line items: Social Security tax and Medicare tax. Both are withheld automatically, and both are mandatory if you are a W-2 employee or self-employed.

FICA is separate from federal income tax. Income tax goes to the general Treasury; FICA goes into dedicated trust funds that pay out benefits. You pay FICA on almost every dollar you earn, with very few exceptions.

Key Takeaways

  • FICA taxes fund Social Security and Medicare, not general government spending, and are withheld from every paycheck for most workers.
  • The Social Security portion is 6.2% of your wages (up to a yearly cap), and Medicare is 1.45% with no cap, plus your employer pays an equal amount.
  • Self-employed people pay both the employee and employer share, totaling 15.3% for Social Security and Medicare combined.
  • FICA withholding creates a record of your earnings that determines how much Social Security and Medicare you are may have access to to later.

How much FICA comes out of your paycheck

The Social Security portion of FICA is 6.2% of your gross wages, but only up to a yearly earnings cap. That cap changes each year; in 2024 it was $168,600. Once you earn that amount in a calendar year, no more Social Security tax is withheld from your remaining paychecks that year.

The Medicare portion is 1.45% of your gross wages with no earnings cap. You pay it on every dollar you make, all year long. High-income earners (over $200,000 for single filers, $250,000 for married filing jointly) pay an additional 0.9% Medicare tax on income above those thresholds.

Your employer pays an equal amount for both Social Security and Medicare. So while you see 7.65% withheld from your check (6.2% + 1.45%), your employer is also sending 7.65% to the government on your behalf. Self-employed people must pay both shares themselves, which is why their FICA burden is roughly double.

Why FICA is withheld from your pay

FICA withholding serves two purposes. First, it funds current benefits: the Social Security checks going to retirees, disabled workers, and survivors right now come from FICA taxes paid by current workers. Second, it creates an earnings record in your name that determines your future benefits.

Every dollar you pay in FICA is recorded by the Social Security Administration. When you turn 62 or older, or if you become disabled, your benefit amount is calculated based on your highest 35 years of earnings. The more you paid in FICA, the higher your benefit will be (up to a maximum). If you do not pay FICA for many years, your benefit will be lower.

For Medicare, FICA withholding funds the hospital insurance portion (Part A). When you turn 65, you become may have access to to Medicare Part A automatically if you paid FICA for at least 10 years (40 quarters) during your working life.

FICA for self-employed workers

If you are self-employed, you pay FICA through self-employment tax on your Schedule SE (IRS Form 1040). You calculate it based on your net business income after deducting business expenses.

Self-employed FICA is 15.3% total: 12.4% for Social Security (on income up to the yearly cap) and 2.9% for Medicare (no cap). This is higher than the 7.65% a W-2 employee sees withheld because you are paying both the employee and employer share. However, you can deduct half of your self-employment tax as a business expense on your tax return, which reduces your taxable income.

Self-employed people must make quarterly estimated tax payments if they expect to owe $1,000 or more in taxes for the year. FICA is included in those estimates.

Who does not pay FICA

Most workers pay FICA, but a few groups are exempt. Federal employees hired before 1984 do not pay Social Security FICA, though they pay Medicare FICA. Some state and local government employees are exempt if they are covered by an alternative retirement system. Certain religious groups that have filed for exemption do not pay FICA.

Students employed by the school or university they attend are exempt from FICA on those wages. Nonresident aliens on certain visa types (F-1, J-1, M-1, Q-1) are exempt from Social Security FICA but must pay Medicare FICA.

If you are not sure whether your job is subject to FICA, check your pay stub. If you see FICA withheld, you are paying it. If you do not see it, you are exempt.

FICA and your future benefits

The FICA you pay now directly affects the benefits you will receive later. Social Security calculates your benefit based on your 35 highest-earning years. If you have fewer than 35 years of FICA-covered earnings, zeros are counted for the missing years, which lowers your benefit.

To receive any Social Security retirement benefit, you must have paid FICA for at least 10 years (40 quarters). To receive Medicare Part A at 65, you also need 10 years of FICA-covered work. Spouses and ex-spouses may be may have access to to benefits based on your earnings record even if they did not work, but your own FICA record is the foundation.

If you have a gap in FICA-covered work — for example, years spent raising children or caring for a parent — those years count as zeros in your benefit calculation. Some people are may have access to to credits for caregiving, but you must request them.

FICA on different types of income

FICA is withheld on wages and salaries. It is also withheld on tips (you report them to your employer), bonuses, commissions, and most other forms of compensation for work.

FICA is not withheld on investment income (capital gains, dividends, interest), rental income, or passive business income. It is not withheld on unemployment benefits, Social Security benefits, or pension payments. If you have both W-2 wages and self-employment income, you pay FICA on both, but the Social Security portion is capped at the yearly maximum across all income combined.

Gig economy income (from platforms like DoorDash, Uber, or Etsy) is subject to self-employment tax, which includes FICA. You are responsible for calculating and paying it yourself, usually through quarterly estimated taxes.

Frequently Asked Questions

Can I opt out of paying FICA?

No, FICA is mandatory for nearly all workers. The only way to avoid it is to fall into one of the narrow exempt categories (certain government employees, religious groups with approved exemptions, or nonresident aliens on specific visas). If you are a W-2 employee or self-employed, you must pay FICA.

What happens to FICA if I change jobs?

Your FICA contributions follow you. The Social Security Administration tracks all your earnings under your Social Security number, regardless of how many employers you have had. Each employer withholds FICA and reports it to the government. Your lifetime earnings record is what matters for benefits, not where you worked.

Do I get FICA back if I leave the country?

No. FICA is not refundable like income tax withholding. However, if you are not a U.S. citizen and you leave the country, you may be may have access to to a refund of your Social Security FICA (but not Medicare FICA) under certain conditions. You must contact the Social Security Administration directly to explore this.

Why is FICA capped for Social Security but not Medicare?

Social Security benefits are capped at a maximum monthly amount, so the tax is also capped. Medicare is designed to cover all workers equally regardless of income, so there is no earnings cap. High-income earners pay an extra 0.9% Medicare tax above the threshold, but Social Security tax stops once you hit the yearly cap.

Can I see my FICA contributions and earnings record?

Yes. You can create an account at ssa.gov and view your Social Security earnings record online. It shows every year you paid FICA and how much you earned. You should check it periodically to make sure it is accurate, because errors can lower your future benefits.