FICA is a federal tax that funds Social Security and Medicare

FICA stands for Federal Insurance Contributions Act. It is a payroll tax that your employer withholds from your paycheck every pay period. The money goes to two programs: Social Security (which pays retirement, disability, and survivor benefits) and Medicare (which pays for health insurance for people 65 and older, and some younger people with disabilities).

FICA is not optional. If you work as an employee, your employer is required by law to take it out. Self-employed people pay FICA themselves when they file taxes. The amount withheld depends on your gross pay — the total you earn before any deductions.

You will see FICA listed on your pay stub in two separate lines: Social Security tax and Medicare tax. Each one has its own rate and its own wage cap (a maximum amount of income subject to the tax each year).

Key Takeaways

  • FICA has two parts: Social Security tax (6.2% of your wages) and Medicare tax (1.45% of your wages), and your employer pays an equal amount on your behalf.
  • Your employer withholds FICA from your paycheck automatically; you cannot opt out if you are a W-2 employee.
  • Social Security tax only applies to the first $168,600 of your annual income in 2024, but Medicare tax applies to all wages with no cap.
  • The money you pay into FICA now builds credits toward your own Social Security and Medicare benefits later.
  • Self-employed people pay both the employee and employer share of FICA, totaling 15.3%, when they file their annual tax return.

How much FICA comes out of your paycheck

The Social Security portion of FICA is 6.2% of your gross wages. The Medicare portion is 1.45% of your gross wages. Together, that is 7.65% of what you earn before taxes.

Your employer also pays 7.65% on your behalf — you do not see this deducted from your check, but it counts toward your Social Security and Medicare credits. This employer contribution is why the total FICA cost to employers is 15.3% per employee.

Example: If you earn $2,000 in a pay period, FICA withheld would be $153 (7.65% of $2,000). Your employer pays another $153 into the system.

The wage cap for Social Security tax

Social Security tax only applies to income up to a certain amount each year. In 2024, that cap is $168,600. Once you reach that amount in a calendar year, your employer stops withholding Social Security tax for the rest of that year.

Medicare tax has no cap. You pay 1.45% on every dollar you earn, no matter how much you make. High earners also pay an additional 0.9% Medicare tax on income above $200,000 (single filers) or $250,000 (married filing jointly), but this is a separate line item on your tax return, not withheld from your paycheck in the same way.

The wage cap changes each year based on inflation. Check the Social Security Administration website or your pay stub to confirm the current year's limit.

Why FICA is withheld and where the money goes

FICA is a dedicated payroll tax. The money does not go into the general federal budget. Instead, it flows directly into two trust funds: the Social Security Trust Fund and the Medicare Trust Fund.

Social Security uses the money to pay current retirees, disabled workers, and survivors of workers who have died. When you reach retirement age (currently 66 to 67 for most people), you become may be able to access to receive monthly benefits based on how much you paid in and how long you worked.

Medicare uses the money to pay for hospital insurance (Part A) for people 65 and older. The amount you paid in FICA does not determine your Medicare benefit amount — Medicare is the same for everyone who qualifies by age or disability status — but your payment history does affect whether you owe premiums for other parts of Medicare.

FICA credits and how they affect your benefits

Every time you pay FICA, you earn credits toward Social Security benefits. In 2024, you earn one credit for every $1,730 in wages you pay Social Security tax on (up to four credits per year). You need 40 credits total to be may be able to access for retirement benefits, and fewer credits to be may be able to access for disability or survivor benefits.

The credits you earn now are recorded under your Social Security number. You can check your earnings record and credits by creating an account on the Social Security Administration website. This record is what determines whether you will receive benefits later and how much those benefits will be.

If you do not earn enough credits during your working years, you will not be may be able to access for Social Security retirement benefits. However, if you are married, divorced, or have dependent children, you may be may be able to access for benefits based on someone else's work record.

What happens if you do not pay FICA

If you are a W-2 employee, you cannot avoid paying FICA — your employer is required to withhold it. If your employer fails to withhold FICA, the employer is breaking the law, and you should report it to the Department of Labor or the IRS.

Some workers are exempt from FICA: certain religious groups, some student employees at the school where they study, and certain family employees. If you think you may be exempt, ask your employer or contact the IRS directly.

If you are self-employed and do not pay FICA when you file your taxes, you will owe it plus penalties and interest. The IRS will pursue collection, and you will not earn credits toward Social Security or Medicare.

Frequently Asked Questions

Can I get FICA taxes back when I file my tax return?

No. FICA is a separate tax from federal income tax. You cannot claim it as a credit or deduction. The money you pay in FICA is gone from your paycheck and goes directly to Social Security and Medicare. However, if your employer withheld FICA incorrectly, you can file a claim with the IRS.

Do I pay FICA on tips?

Yes. Tips are considered wages, and FICA is withheld on them. Your employer should withhold FICA based on the tips you report. If you receive cash tips and do not report them, you still owe FICA on those tips when you file your tax return.

What if I work for two employers at the same time?

Both employers will withhold Social Security tax up to the annual wage cap. If your combined income exceeds the cap, you may have overpaid Social Security tax. You can claim the overpayment as a credit on your tax return when you file. Medicare tax has no cap, so there is no overpayment issue with Medicare.

Does FICA apply to unemployment benefits or disability payments?

No. Unemployment benefits and Social Security Disability Insurance (SSDI) payments are not subject to FICA withholding. However, they may be subject to federal income tax withholding if you request it.