FICA takes money from your paycheck to fund 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 and disability benefits, and Medicare, which covers hospital insurance for people 65 and older and some younger people with disabilities.

You see FICA listed on your pay stub as two separate line items: Social Security tax and Medicare tax. Your employer also pays an equal amount on your behalf — that employer portion does not show on your stub, but it is part of what your employer owes to the government.

FICA is mandatory. If you work as an employee, your employer is required by law to withhold it. The only common exception is if you are a student employed by your school, or if you work for a religious organization that has filed for exemption.

Key Takeaways

  • Social Security tax is 6.2% of your wages, and Medicare tax is 1.45%, for a combined 7.65% that comes out of your paycheck.
  • Your employer pays an additional 7.65% on your behalf, though you do not see this amount on your stub.
  • Self-employed people pay both the employee and employer portions, totaling 15.3%, because they have no employer to split the cost.
  • FICA withholding stops at a wage cap for Social Security ($168,600 in 2024, though this amount changes yearly), but Medicare tax continues on all earnings.
  • The money you pay in now funds current retirees and disabled workers; your own benefits later will come from future workers' FICA taxes.

How much FICA comes out of your paycheck

Social Security tax is 6.2% of your gross wages. Medicare tax is 1.45% of your gross wages. Together, that is 7.65% of what you earn before any other deductions.

The Social Security portion stops once you reach a wage cap in a given year. In 2024, that cap is $168,600 in total earnings. Once you hit that amount, no more Social Security tax is withheld for the rest of that calendar year. Medicare tax, however, has no cap — it continues on every dollar you earn, no matter how much you make.

If you earn $50,000 in a year, you pay $3,100 in Social Security tax and $725 in Medicare tax. If you earn $200,000, you pay $10,453.20 in Social Security tax (capped at the wage limit) and $2,900 in Medicare tax.

Why your employer pays FICA too

Your employer is required to match your FICA contribution dollar for dollar. If you pay 7.65%, your employer also pays 7.65% on your behalf. This employer portion is a real cost to the business, but it does not reduce your paycheck — it is a separate payment the employer sends to the government.

This matching system exists because FICA is designed as a shared insurance program. The idea is that both workers and employers contribute to the fund that pays benefits. In practice, the employer contribution is often factored into how much a company is willing to pay you in salary, so you bear some of the cost indirectly.

Self-employed workers pay double

If you are self-employed, you pay both the employee and employer portions of FICA. That means you pay 15.3% total instead of 7.65%. This is called self-employment tax.

You calculate self-employment tax on your net business income (what you earn minus legitimate business expenses). You report it on Schedule SE when you file your taxes. The IRS does allow you to deduct half of your self-employment tax as a business expense, which reduces your taxable income slightly, but you still pay the full 15.3% amount.

Self-employed people file quarterly estimated tax payments to cover both income tax and self-employment tax, rather than having an employer withhold it from a paycheck.

The wage cap and why it matters

Social Security tax only applies to the first $168,600 of your earnings in 2024. This wage cap increases most years based on inflation. Once you earn that much in a calendar year, your employer stops withholding Social Security tax from your remaining paychecks for that year.

This means high earners pay a smaller percentage of their total income in Social Security tax than lower earners do. A person earning $50,000 pays 6.2% on all of it. A person earning $500,000 pays 6.2% only on the first $168,600, which works out to about 2.1% of their total income.

Medicare tax has no wage cap, so it continues on all earnings no matter how much you make. High earners also pay an additional 0.9% Medicare tax on wages over $200,000 (or $250,000 if married filing jointly), which is a separate tax that started in 2013.

Where your FICA money goes

Social Security tax funds retirement benefits, survivor benefits for families of deceased workers, and disability benefits. Medicare tax funds hospital insurance (Part A) for people 65 and older, and for some younger people with disabilities or end-stage renal disease.

The system operates on a pay-as-you-go basis. The FICA taxes collected today pay benefits to current retirees and disabled workers. Your own benefits later will come from FICA taxes paid by future workers. This is why the program is sometimes called an "insurance" program — you are insured against the risk of old age, disability, or death, and you help insure others in return.

Both Social Security and Medicare are managed by the federal government. Social Security is run by the Social Security Administration, and Medicare is run by the Centers for Medicare and Medicaid Services.

FICA versus income tax — what is the difference

FICA and federal income tax are two separate withholdings on your paycheck. FICA funds Social Security and Medicare. Federal income tax funds general government operations and is based on your tax bracket and filing status.

FICA is a flat percentage (6.2% for Social Security, 1.45% for Medicare) applied to all wages up to the cap. Income tax is progressive — the percentage increases as you earn more — and it depends on how you fill out your W-4 form with your employer.

You can see both on your pay stub. FICA withholding is mandatory and the same for everyone. Income tax withholding varies based on your personal situation. State and local taxes, if you live in a state or city that has them, are additional withholdings beyond both FICA and federal income tax.

Frequently Asked Questions

Can I opt out of paying FICA?

No, FICA is mandatory for employees. The only exceptions are certain religious groups that have filed for exemption with the IRS, and students employed by their school in limited circumstances. If you are a regular employee, your employer must withhold FICA from your paycheck.

What happens if I work multiple jobs?

Each employer withholds FICA based on your wages at that job. If your combined earnings across all jobs exceed the Social Security wage cap, you may overpay Social Security tax. You can claim a credit for the overpayment when you file your tax return, but you will not get the money back until then.

Do I get FICA back if I do not work long enough to retire?

No. FICA is not a savings account you can withdraw from. If you do not work long enough to earn Social Security credits, you do not receive retirement benefits. However, your family may still be may have access to to survivor benefits if you die, and you may be may have access to to disability benefits if you become unable to work.

Why does my FICA withholding stop partway through the year?

Social Security tax stops once you reach the annual wage cap ($168,600 in 2024). If you earn more than that, your employer stops withholding Social Security tax from your remaining paychecks. Medicare tax continues all year with no cap.

Is FICA the same as payroll tax?

FICA is a type of payroll tax, but not all payroll taxes are FICA. Payroll tax is the broad category that includes FICA (Social Security and Medicare), federal income tax withholding, and state and local taxes. FICA specifically refers only to Social Security and Medicare.