FICA is a payroll tax that funds Social Security and Medicare

FICA stands for Federal Insurance Contributions Act. It is a payroll tax taken directly from your paycheck. The money goes into two separate programs: Social Security and Medicare. Your employer also pays a matching amount on your behalf, though you do not see that money — it goes straight to the government.

FICA is not optional. If you work as an employee, your employer is required by law to withhold it. The amount comes out before you receive your paycheck. Self-employed people pay FICA themselves, though they pay both the employee and employer portions combined.

The tax rate is fixed by federal law and does not change based on your income level or how much you earn. In 2024, the employee portion is 15.3 percent of your gross wages: 12.4 percent for Social Security and 2.9 percent for Medicare. Your employer pays an identical 15.3 percent on top of your salary.

Key Takeaways

  • FICA has two parts: Social Security (12.4 percent) and Medicare (2.9 percent), and both are withheld from every paycheck.
  • Your employer must match your FICA contribution dollar-for-dollar, though this amount does not appear on your pay stub.
  • Self-employed workers pay the full 15.3 percent themselves because they are both employee and employer.
  • FICA is mandatory for all W-2 employees; there is no way to opt out or reduce the withholding based on income.
  • The Social Security portion stops once you reach an annual earnings cap, but Medicare withholding continues on all income above that threshold.

How the Social Security portion works

The Social Security part of FICA is 12.4 percent of your wages. This money funds retirement benefits, disability benefits, and survivor benefits for people whose family members have died. When you turn 62 or older, you can begin receiving monthly Social Security payments based on how much you paid in and how long you worked.

There is an annual earnings cap on Social Security withholding. In 2024, you stop paying the 12.4 percent Social Security tax once your wages reach $168,600 for the year. If you earn $200,000, you only pay Social Security tax on the first $168,600. This cap changes every year based on wage growth. High earners pay less Social Security tax as a percentage of total income because of this cap.

The money you pay in now does not sit in an account with your name on it. Social Security operates on a pay-as-you-go system: current workers' contributions fund current retirees' benefits. When you retire, future workers' contributions will fund your benefits.

How the Medicare portion works

The Medicare part of FICA is 2.9 percent of your wages, with no earnings cap. You pay this tax on every dollar you earn, no matter how much you make. Unlike Social Security, there is no threshold where the withholding stops.

This money funds Medicare, the federal health insurance program for people 65 and older and for some younger people with disabilities or end-stage renal disease. When you turn 65, you become may be able to access for Medicare Part A (hospital insurance) and Part B (medical insurance) based partly on your FICA contributions.

High earners pay an additional 0.9 percent Medicare tax on wages above $200,000 (for single filers) or $250,000 (for married couples filing jointly). This extra tax was added in 2013 and applies only to income above those thresholds. Your employer does not match this additional 0.9 percent.

The difference between FICA and income tax

FICA and federal income tax are two separate withholdings on your paycheck. Many people confuse them because both come out before you see your money. FICA funds Social Security and Medicare. Federal income tax funds the general operations of the federal government — defense, roads, courts, and thousands of other programs.

The rates are different. FICA is a flat 15.3 percent (split between Social Security and Medicare). Federal income tax varies based on your income level, filing status, and deductions. You can adjust your federal income tax withholding by changing your W-4 form with your employer. You cannot adjust FICA withholding — it is the same for everyone.

FICA also has an earnings cap for Social Security, while federal income tax does not. A person earning $500,000 pays federal income tax on all of it, but only pays Social Security tax on the first $168,600 (in 2024).

Self-employed workers and FICA

If you are self-employed, you pay FICA through the Self-Employment Tax, calculated on Schedule SE of your tax return. You pay both the employee portion (12.4 percent for Social Security, 2.9 percent for Medicare) and the employer portion (another 12.4 percent and 2.9 percent). The total is 15.3 percent, the same as a regular employee pays, but you pay it all yourself.

You can deduct half of your self-employment tax as a business expense on your tax return, which reduces your taxable income slightly. This deduction does not reduce the amount you owe — it only reduces the income on which you pay federal income tax.

Self-employed people must pay estimated taxes quarterly if they expect to owe more than $1,000 in federal income tax and self-employment tax combined. This is different from W-2 employees, whose employers withhold taxes throughout the year.

What your FICA contributions record looks like

The Social Security Administration keeps a record of every dollar you have paid into FICA under your Social Security number. 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 estimates what your benefits might be at different retirement ages.

This record matters because your Social Security benefit amount is based on your 35 highest-earning years. If you have worked fewer than 35 years, zeros are counted for the missing years, which lowers your average. If you have worked more than 35 years, only your top 35 years count.

You need 40 work credits to may have access to for Social Security retirement benefits. In 2024, you earn one credit for every $1,730 in wages (up to four credits per year). Most people earn 40 credits over a 10-year working life, though the exact timeline depends on when you started working.

FICA withholding on different types of income

FICA applies only to wages and self-employment income. It does not apply to investment income, interest, dividends, capital gains, or rental income. If you earn $100,000 from the stock market, you pay no FICA on that money. If you earn $100,000 in wages, you pay FICA on all of it.

Some types of employment are exempt from FICA. Students employed by the school where they are enrolled, certain religious workers, and some government employees do not pay FICA. If you work for a nonprofit organization, you still pay FICA — nonprofit status does not exempt you.

Certain fringe benefits are also exempt from FICA withholding, including health insurance premiums paid by your employer, contributions to a 401(k) or traditional IRA (up to limits), and dependent care accounts. These reduce your taxable wages for FICA purposes.

Frequently Asked Questions

Can I get a refund of FICA taxes I have already paid?

No. FICA taxes are not refundable. Once withheld, the money goes to Social Security and Medicare and cannot be returned. You cannot reduce your FICA withholding or claim it back on your tax return, even if you overpaid.

What happens to FICA if I change jobs?

Your FICA contributions follow you. Each employer withholds FICA from your paycheck and sends it to the government under your Social Security number. The Social Security Administration combines all your earnings from all jobs into one record. If you work multiple jobs in one year, you may overpay Social Security tax (because each employer withholds up to the cap), but you can claim the overpayment as a credit on your tax return.

Do I pay FICA on bonuses and overtime?

Yes. FICA applies to all wages, including bonuses, overtime pay, commissions, and tips. The same withholding rates apply — 12.4 percent for Social Security (up to the annual cap) and 2.9 percent for Medicare, plus the additional 0.9 percent Medicare tax if you are a high earner.

What if I did not pay FICA for some years?

Years with no earnings or no FICA contributions count as zeros in your Social Security benefit calculation. If you worked 30 years but have 35 years counted, five zeros are included in your average. This lowers your benefit amount. You cannot go back and pay FICA for past years to change this.

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. FICA only applies to wages and self-employment income.