FICA is the tax your employer deducts for Social Security and Medicare

FICA stands for Federal Insurance Contributions Act. It is a payroll tax that comes out of your paycheck automatically. Your employer sends it to the federal government on your behalf. FICA has two parts: Social Security tax and Medicare tax. Together, they typically take about 7.65% of your gross pay before taxes are withheld.

You see FICA listed on your pay stub as separate line items. Social Security tax is 6.2% of your wages. Medicare tax is 1.45% of your wages. If you earn over $200,000 per year (or $250,000 if married filing jointly), an additional 0.9% Medicare tax applies to the income above that threshold. Your employer also pays an equal amount into FICA on your behalf, though that money does not show on your paycheck.

FICA is different from federal income tax withholding. Income tax withholding depends on your W-4 form and how much you earn. FICA is a fixed percentage that applies the same way to almost everyone, regardless of filing status or deductions.

Key Takeaways

  • FICA deductions appear on every paycheck and fund Social Security retirement benefits and Medicare health insurance for people age 65 and older.
  • Social Security tax is 6.2% of your wages up to a yearly cap (in 2024, that cap is $168,600), and Medicare tax is 1.45% with no cap.
  • Your employer pays an equal FICA amount on your behalf, but you only see your half deducted from your paycheck.
  • Self-employed people pay both the employee and employer portions of FICA, totaling 15.3%, though they can deduct half on their tax return.

How much FICA comes out of each paycheck

The amount depends on your gross pay and whether you have hit the Social Security wage cap for the year. To find your FICA deduction, multiply your gross pay by 0.0765 (7.65%). That gives you the total FICA tax for that paycheck.

Social Security tax stops once you reach the yearly wage cap. In 2024, that cap is $168,600. Once your year-to-date earnings hit that amount, no more Social Security tax comes out for the rest of the year. Medicare tax has no cap and continues on all wages you earn. This means your FICA deduction shrinks in the last few paychecks of the year if you earn a high salary.

Example: If you earn $3,000 per paycheck and have not hit the Social Security cap, your FICA deduction is $229.50 ($3,000 × 0.0765). If you are self-employed and earn $3,000, you owe $459 in FICA ($3,000 × 0.153), though you can deduct half of that on your tax return.

Where FICA money goes

Social Security tax funds the Social Security program. This program pays retirement benefits to people age 62 and older, disability benefits to workers who cannot work due to injury or illness, and survivor benefits to the families of deceased workers. The money you pay in now does not sit in an account with your name on it. Instead, current Social Security taxes pay current beneficiaries. When you reach retirement age, future workers' taxes will pay your benefit.

Medicare tax funds the Medicare program, which provides health insurance to people age 65 and older and some younger people with disabilities or end-stage renal disease. Medicare has four parts: Part A covers hospital stays, Part B covers doctor visits and outpatient care, Part D covers prescription drugs, and Part C is an alternative plan option. The Medicare tax you pay now helps fund these benefits for current retirees.

FICA for self-employed workers

If you are self-employed, you pay both the employee and employer portions of FICA. This is called self-employment tax. The total rate is 15.3%: 12.4% for Social Security (up to the yearly wage cap) and 2.9% for Medicare (no cap). You calculate self-employment tax on your net business income, not your gross revenue.

Self-employed workers file Schedule SE with their tax return to calculate self-employment tax. You then pay this tax with your income tax return or through quarterly estimated tax payments. The IRS allows you to deduct half of your self-employment tax on your tax return, which reduces your taxable income. This deduction roughly offsets the employer portion you are paying.

If you have both W-2 wages and self-employment income, you may owe additional Medicare tax if your total income exceeds the thresholds mentioned earlier. Track both sources of income carefully when calculating what you owe.

Why FICA appears on every paycheck

FICA is mandatory for almost all workers in the United States. Your employer is required by law to withhold it and send it to the IRS. You cannot opt out, even if you plan to claim an exemption from income tax withholding. FICA applies to wages, salaries, tips, and certain other forms of compensation.

A few narrow groups are exempt from FICA. Some religious groups that have formal objections to insurance programs can request exemption. Certain nonresident aliens and students on specific visa types may be exempt from Social Security tax on wages earned from their school. Most workers, however, pay FICA on every dollar earned.

FICA on your tax return

FICA taxes you paid during the year appear on your W-2 form in boxes 4 (Social Security tax withheld) and 6 (Medicare tax withheld). You do not claim FICA as a deduction or credit on your tax return. It is already withheld from your pay, so the IRS knows what you paid. If you overpaid FICA due to working multiple jobs or earning over the Social Security cap, you may be able to claim a credit on your tax return, but this is rare and only applies in specific situations.

Self-employed workers report self-employment tax on Schedule SE and transfer the amount to Form 1040. You can deduct half of the self-employment tax you paid, which lowers your adjusted gross income. This deduction is separate from the standard deduction and applies whether you itemize or take the standard deduction.

Frequently Asked Questions

Can I get FICA tax back on my tax return?

No, FICA is not refundable. However, if you worked multiple jobs and overpaid Social Security tax because each employer withheld it separately, you can claim a credit for the overpayment on your tax return. This happens when your total Social Security tax withheld exceeds the yearly cap. You would claim this credit on Form 1040.

What happens to FICA if I do not work long enough to get Social Security?

Social Security requires 40 work credits to receive retirement benefits. One credit is earned for each $1,640 of wages in 2024 (the amount changes yearly). If you do not earn enough credits, you will not receive a Social Security retirement benefit. However, your survivors may still receive benefits if you die, and you may receive disability benefits if you become unable to work.

Do I pay FICA on bonuses and overtime?

Yes. FICA applies to all wages, including bonuses, overtime pay, and commissions. The same 6.2% Social Security tax (up to the yearly cap) and 1.45% Medicare tax apply. Your employer withholds FICA on these payments just as they do on regular wages.

Why is my FICA deduction smaller at the end of the year?

This happens because Social Security tax has a yearly wage cap. Once your earnings reach the cap (in 2024, $168,600), no more Social Security tax is withheld for the rest of the year. Medicare tax continues on all wages with no cap. So your total FICA deduction drops in the final paychecks of the year if you earn a high salary.