What FICA taxes are and why they come out of your paycheck

FICA stands for the Federal Insurance Contributions Act. It is the law that requires your employer to take money from your paycheck for two programs: Social Security and Medicare. These are not optional — if you work as an employee, FICA taxes come out automatically.

The money does not sit in an account with your name on it. Instead, it funds current benefits for people who are retired, disabled, or on Medicare right now. When you retire or become unable to work, those same programs will pay you based on what you contributed during your working years.

Self-employed people pay FICA taxes too, but they pay both the employee and employer portions themselves. If you work as an employee, your employer covers the employer portion and takes the employee portion from your check.

Key Takeaways

  • FICA has two parts: Social Security (6.2% of your wages) and Medicare (1.45% of your wages), plus your employer pays matching amounts.
  • Social Security tax stops once you earn a certain amount each year, but Medicare tax continues on all wages with no income limit.
  • Your FICA contributions are tracked by your Social Security number, and you can see your record on your Social Security statement.
  • Self-employed workers pay both the employee and employer portions of FICA, which is double what a regular employee pays out of pocket.
  • FICA taxes fund current retirees and disabled workers, not a personal savings account in your name.

The two parts of FICA: Social Security and Medicare

FICA has two separate taxes. The first is Social Security tax, which is 6.2% of your wages. Your employer also pays 6.2%, for a total of 12.4%. This money funds retirement benefits, survivor benefits (paid to your family if you die), and disability benefits.

The second is Medicare tax, which is 1.45% of your wages. Your employer also pays 1.45%, for a total of 2.9%. This money funds the Medicare health insurance program for people age 65 and older, and for some younger people with disabilities or end-stage renal disease.

There is also an Additional Medicare Tax of 0.9% that applies only to you (not your employer) if your wages exceed a certain threshold. For 2024, that threshold is $200,000 for single filers and $250,000 for married couples filing jointly. Your employer will withhold this automatically if you cross the threshold.

How the Social Security wage cap works

Social Security tax only applies to wages up to a certain amount each year. That amount is called the wage base, and it changes every year. For 2024, the wage base is $168,600, which means you only pay Social Security tax on the first $168,600 you earn in that year.

Once you earn more than the wage base, you stop paying Social Security tax for the rest of that year. If you change jobs mid-year and your new employer does not know you already hit the limit, you may pay too much. You can claim the overpayment as a credit on your tax return, and the IRS will refund it.

Medicare tax has no wage cap. You pay 1.45% on every dollar you earn, no matter how much you make. This is why high earners pay more Medicare tax than Social Security tax.

Where to find your FICA contributions on your pay stub

Your pay stub shows exactly how much FICA tax came out of your paycheck. Look for lines labeled "Social Security" or "OASDI" (Old-Age, Survivors, and Disability Insurance) and "Medicare" or "HI" (Hospital Insurance). These show the employee portion only — your employer's portion does not appear on your stub.

Your pay stub also shows your year-to-date totals, which tells you how much you have paid so far this year. If you are close to the Social Security wage cap, you can use this to estimate when your Social Security tax will stop.

If you do not have a pay stub or need a full record of your FICA contributions over many years, you can request a Social Security Statement at ssa.gov. This document shows your earnings history and estimates what you may receive in retirement or disability benefits based on your contributions.

How self-employed workers pay FICA taxes

If you are self-employed, you pay FICA taxes through the Self-Employment Tax on your federal income tax return. You pay both the employee and employer portions, which means 12.4% for Social Security (up to the wage cap) and 2.9% for Medicare, plus the 0.9% Additional Medicare Tax if your income is high enough.

Self-employed people calculate this on Schedule SE (Self-Employment Tax), which is part of Form 1040. The calculation is based on your net business income, not your gross revenue. You can deduct half of your self-employment tax when you calculate your adjusted gross income, which reduces your overall tax burden slightly.

If you have both W-2 income from an employer and self-employment income, you still only pay Social Security tax on combined earnings up to the annual wage cap. Make sure to account for any W-2 Social Security tax you already paid when you calculate your self-employment tax.

What happens to FICA money after it is collected

FICA taxes go into two separate trust funds: the Social Security Trust Fund and the Medicare Trust Fund. These are not savings accounts. The money collected this year pays benefits to current retirees, disabled workers, and Medicare beneficiaries this year.

The Social Security Administration and Centers for Medicare and Medicaid Services manage these funds. They publish annual reports showing how much money came in, how much went out, and whether the funds have enough money to pay all benefits in the future. You can read these reports on their websites if you want details about the programs' finances.

Your individual FICA contributions are tracked by your Social Security number. When you retire, become disabled, or turn 65, the Social Security Administration calculates your benefit amount based on your earnings history and how much you contributed over your working years.

How to check your FICA contribution record

You can see your complete FICA contribution history by creating an account at ssa.gov and viewing your Social Security Statement. This statement shows your earnings for each year you worked, the FICA taxes you paid, and estimates of what you might receive in retirement, disability, or survivor benefits.

Check this statement every few years to make sure your earnings are recorded correctly. If you see an error — such as a year where you earned money but it is not showing up — contact the Social Security Administration to correct it. Errors can reduce your future benefits, so it is worth fixing them while you are still working.

If you are self-employed or have multiple jobs, make sure all your income is being reported to Social Security. Your employer or clients should send you a W-2 or 1099 form, and you should report all of that income on your tax return so it counts toward your Social Security record.

Frequently Asked Questions

Can I opt out of paying FICA taxes?

No. FICA taxes are mandatory for all employees and self-employed workers. The only exceptions are certain religious groups that have been granted exemptions, and some government employees hired before specific dates who are covered by different retirement systems instead.

What if I did not pay FICA taxes for some years?

Those years count as zero-income years in your Social Security record. Your benefit amount is based on your 35 highest-earning years, so unpaid years will lower your average. You cannot go back and pay FICA taxes for past years unless you are self-employed and did not file a return for that year.

Do I get back the FICA taxes I paid if I die before retirement?

No, but your family may. If you die, your spouse, children, or parents may be may have access to to survivor benefits based on your FICA contributions. The amount depends on your age, how long you worked, and who survives you. Contact the Social Security Administration to find out what your family may receive.

Why does my FICA tax stop partway through the year?

Your Social Security tax stops once you earn more than the annual wage cap, which is $168,600 in 2024. If you have multiple jobs or change jobs, you might hit this limit before December. Medicare tax continues all year with no limit.

Is FICA the same as federal income tax?

No. FICA and federal income tax are separate. FICA funds Social Security and Medicare. Federal income tax funds general government operations. Both come out of your paycheck, but they go to different places and fund different programs.