FICA tax is split into two parts: Social Security and Medicare

FICA stands for Federal Insurance Contributions Act. When you see FICA deducted from your paycheck, that money funds two separate programs. Social Security takes 6.2 percent of your wages, and Medicare takes 1.45 percent. If you are self-employed, you pay both the employee and employer portions — 12.4 percent for Social Security and 2.9 percent for Medicare — though you can deduct half of it on your taxes.

Your employer also pays matching amounts into these programs on your behalf. That employer contribution does not show up on your paycheck, but it counts toward your work history and benefit calculations. Together, employee and employer contributions fund the entire system.

Understanding what each part covers helps you know what you are paying for and what you might receive later. The two programs operate independently, have different rules, and pay out different benefits.

Key Takeaways

  • Social Security FICA tax (6.2 percent) funds retirement, disability, and survivor benefits for workers and their families.
  • Medicare FICA tax (1.45 percent) funds hospital insurance, medical insurance, and prescription drug coverage for people age 65 and older.
  • Self-employed workers pay both the employee and employer share of FICA taxes, totaling 15.3 percent.
  • Your FICA contributions build a record of earnings that determines how much you receive in benefits later.
  • FICA taxes have wage caps — Social Security stops taking FICA after you earn a certain amount each year, but Medicare does not have a cap.

Social Security: retirement, disability, and family benefits

The Social Security portion of FICA (6.2 percent) funds three types of benefits. Retirement benefits go to workers who reach age 62 or older. The amount you receive depends on how much you earned over your lifetime and when you claim — claiming at 62 gives you less per month than waiting until age 70.

Disability benefits go to workers under full retirement age who cannot work due to a medical condition expected to last at least 12 months or result in death. You do not have to be retired to receive them. Family members — a spouse, ex-spouse, or children under 19 — may also receive benefits based on your earnings record.

Survivor benefits go to your family if you die. A spouse of any age caring for your child under 16, your children under 19, and your parents age 62 or older may all receive payments based on what you earned.

Medicare: hospital, medical, and prescription drug coverage

The Medicare portion of FICA (1.45 percent) funds health insurance for people age 65 and older, regardless of income. It has four parts. Part A covers hospital stays, skilled nursing facility care, hospice, and some home health services. Part B covers doctor visits, outpatient care, and medical equipment. Part D covers prescription drugs. Part C (Medicare Advantage) is an alternative way to receive Parts A and B through a private insurance company.

You become may be able to access for Medicare at 65 if you have worked and paid FICA taxes for at least 10 years (40 quarters). Some people under 65 may have access to if they receive Social Security disability benefits or have end-stage renal disease or ALS. Your FICA contributions do not fully fund your Medicare benefits — the program is also funded by general tax revenue and premiums you pay when you enroll.

Unlike Social Security, there is no wage cap on Medicare FICA tax. Once you earn above a certain threshold (which varies by filing status), you pay an additional 0.9 percent Medicare tax on the excess income. High-income earners also pay a 3.8 percent Net Investment Income Tax on certain investment income.

How FICA wage caps work

Social Security FICA tax only applies to earnings up to a certain amount each year. In 2024, that cap is $168,600 — meaning once you earn that much, your employer stops taking the 6.2 percent Social Security tax from your paycheck for the rest of the year. The cap changes annually based on wage growth.

Medicare FICA tax has no wage cap. You pay 1.45 percent on all your earnings, no matter how much you make. High earners pay an additional 0.9 percent Medicare tax on wages above $200,000 (single filers) or $250,000 (married filing jointly).

Self-employed workers pay both portions but can deduct half of their FICA taxes as a business expense on their tax return. The wage cap for self-employment Social Security tax is the same as for regular employees.

What happens to FICA money after it is collected

FICA taxes go into two separate trust funds managed by the Social Security Administration. The Old-Age and Survivors Insurance Trust Fund pays retirement and survivor benefits. The Disability Insurance Trust Fund pays disability benefits. These funds are not savings accounts — current workers' FICA taxes pay current beneficiaries' benefits.

Medicare taxes go into the Hospital Insurance Trust Fund (Part A) and the Supplementary Medical Insurance Trust Fund (Parts B and D). Like Social Security, these operate on a pay-as-you-go basis, though they also draw from general tax revenue.

Both systems are monitored by trustees who report annually on whether incoming revenue will cover outgoing benefits. Social Security's trustees have projected that the trust funds will be depleted in the mid-2030s if no changes are made, after which incoming FICA taxes would cover about 80 percent of scheduled benefits. Congress would need to act to change tax rates, benefit amounts, or the wage cap to address this.

FICA taxes for different types of workers

Most employees have FICA taxes withheld automatically by their employer. If you have multiple jobs, each employer withholds FICA on your earnings from that job, even if your total earnings exceed the Social Security wage cap. You can claim a credit on your tax return if you overpaid Social Security tax.

Self-employed workers (including sole proprietors and partners) pay FICA taxes through self-employment tax on Schedule SE of their tax return. You calculate it based on your net business income. Farmers, clergy, and some other groups have special rules.

Certain workers are exempt from FICA taxes, including some government employees hired before specific dates, nonresident aliens on certain visas, and students employed by their school. If you are unsure whether your job is subject to FICA, ask your employer or check your pay stub — it should show FICA withholding.

Frequently Asked Questions

Can I opt out of paying FICA taxes?

No. FICA taxes are mandatory for nearly all workers in the United States. A few narrow groups are exempt — some government employees, certain religious groups, and nonresident aliens on specific visas — but most people cannot opt out. If you are self-employed, you must pay self-employment tax, which includes FICA.

What if I did not work long enough to get Social Security benefits?

You need 40 quarters (10 years) of work history to receive Social Security retirement or survivor benefits. If you have fewer than 40 quarters, you will not receive benefits based on your own earnings. However, you may be able to receive benefits as a spouse or ex-spouse of someone who does have 40 quarters.

Do FICA taxes pay for unemployment benefits?

No. Unemployment insurance is funded by a separate payroll tax called FUTA (Federal Unemployment Tax Act), which employers pay. FICA funds only Social Security and Medicare. Some states also have their own unemployment insurance taxes.

If I work part-time, do I still pay FICA taxes?

Yes. FICA taxes apply to all wages, regardless of whether you work full-time or part-time. Your employer withholds FICA based on your earnings from that job. If you have multiple part-time jobs, each employer withholds FICA separately.

What if my employer did not withhold FICA taxes?

Report it to the IRS and your state labor department. Your employer is required by law to withhold and pay FICA taxes. If they did not, you may still owe the taxes, and your employer may face penalties. Keep your pay stubs as proof of what was or was not withheld.