FICA taxes are the Social Security and Medicare deductions taken from your paycheck

FICA stands for the Federal Insurance Contributions Act. It is the law that requires your employer to withhold money from your wages for two programs: Social Security and Medicare. You see these deductions on your pay stub as "Social Security tax" and "Medicare tax" (or sometimes "FICA tax" listed as a single line). The money does not go into a personal account with your name on it — it goes into a federal trust fund that pays current beneficiaries, and your contributions build your own future benefit record.

If you are self-employed, you pay both the employee and employer portions yourself, which is called self-employment tax. The rate is higher because you cover both sides, but the money goes to the same two programs.

Key Takeaways

  • FICA taxes fund Social Security retirement, disability, and survivor benefits, plus Medicare hospital insurance.
  • As an employee, you pay 6.2 percent for Social Security and 1.45 percent for Medicare; your employer pays the same amounts.
  • Self-employed people pay 12.4 percent for Social Security and 2.9 percent for Medicare because they cover both the employee and employer share.
  • Social Security tax stops once you reach the annual wage cap, but Medicare tax continues on all earnings above that cap.
  • Your FICA contributions create a record that determines your future Social Security and Medicare benefits.

How much FICA tax comes out of your paycheck

If you work for an employer, FICA taxes are split between you and your employer. You pay 6.2 percent of your gross wages for Social Security tax and 1.45 percent for Medicare tax. Your employer withholds these amounts and also pays an equal amount on your behalf — you do not see the employer portion on your pay stub, but it is part of your total compensation cost.

The Social Security tax rate of 6.2 percent only applies to wages up to an annual cap. In 2024, that cap is $168,600, which means once you earn that much in a calendar year, no more Social Security tax is withheld from your remaining paychecks. The Medicare tax of 1.45 percent has no cap and continues on all wages. Additionally, if your income exceeds certain thresholds (which vary by filing status), you pay an extra 0.9 percent Medicare tax on the amount above that threshold.

For example, if you earn $3,000 in a paycheck, you pay $186 in Social Security tax (6.2 percent) and $43.50 in Medicare tax (1.45 percent), for a total FICA withholding of $229.50. Your employer also pays $229.50 on your behalf.

Self-employment tax: what you pay if you work for yourself

If you are self-employed — meaning you own a business, work as a freelancer, or have net earnings of $400 or more from self-employment — you pay self-employment tax instead of the employee-employer split. You pay both sides: 12.4 percent for Social Security and 2.9 percent for Medicare, for a total of 15.3 percent of your net self-employment income.

You calculate self-employment tax on Schedule SE (Form 1040), which you file with your annual tax return. You can deduct half of your self-employment tax as a business expense on your tax return, which reduces your taxable income. The IRS provides worksheets and instructions on Form 1040 to help you calculate this amount.

Self-employed people often make quarterly estimated tax payments to cover both income tax and self-employment tax, since no employer is withholding from their paychecks. The IRS Form 1040-ES helps you calculate what to pay and when.

Where FICA tax money goes

Social Security tax funds three separate programs: retirement benefits for workers age 62 and older, disability benefits for workers who cannot work due to a medical condition, and survivor benefits for the spouses and children of workers who die. The Social Security Administration manages these programs and maintains a record of your earnings history based on your contributions.

Medicare tax funds hospital insurance (Part A), which covers inpatient hospital stays, skilled nursing facility care, and some home health services. The Centers for Medicare & Medicaid Services (CMS) administers Medicare. Note that Medicare tax does not fund Medicare Parts B, D, or supplemental coverage — those are funded differently and have separate premiums.

Both programs operate as pay-as-you-go systems: current workers' FICA taxes pay current beneficiaries' benefits. Your contributions do not sit in an account waiting for you; they are distributed when ready to people receiving benefits today.

How FICA contributions affect your future benefits

The Social Security Administration tracks your FICA contributions throughout your working life. Your Social Security benefit amount is calculated based on your highest 35 years of earnings, adjusted for inflation. The more you earn and contribute over your career, the higher your future benefit will be — up to a maximum amount that changes each year.

For Medicare, straightforward paying Medicare tax for a certain period makes you may be able to access for Part A (hospital insurance) at age 65, even if you do not claim Social Security retirement benefits. You do not need to have paid a specific amount; you need to have paid Medicare tax for at least 40 quarters (10 years) to be fully insured. If you have fewer than 40 quarters, you may still be able to buy Part A coverage, but you will pay a higher premium.

You can view your earnings record and estimated future benefits by creating an account on the Social Security Administration website at ssa.gov. The site shows your reported earnings for each year and provides a projection of what your benefits might be at different ages.

FICA taxes and different types of income

FICA taxes explore to wages, salaries, and tips from employment. They also explore to net earnings from self-employment. However, FICA taxes do not explore to investment income such as capital gains, dividends, or interest; rental income (unless you are in the business of renting); or certain other types of income like gifts or inheritances.

Some types of employment are exempt from FICA taxes. These include certain government employees hired before specific dates, some religious sect members, and nonresident aliens in certain visa categories. If you work for a nonprofit organization or government agency, you may still pay FICA taxes — it depends on the specific employer and your position.

If you have both W-2 employment and self-employment income in the same year, you pay FICA taxes on both. However, if your combined earnings exceed the Social Security wage cap, you do not pay Social Security tax on earnings above that cap. You may be able to claim a credit on your tax return if you overpaid Social Security tax due to having multiple employers.

The difference between FICA taxes and income tax

FICA taxes and federal income tax are two separate withholdings on your paycheck. FICA taxes are a fixed percentage (6.2 percent for Social Security, 1.45 percent for Medicare) and fund only those two programs. Federal income tax is withheld based on the W-4 form you complete with your employer and depends on your filing status, dependents, and other factors. Income tax funds general government operations.

You can see both on your pay stub. FICA withholding is usually listed separately from federal income tax withholding. Some states also withhold state income tax, which is a third separate deduction. The total of all three can be substantial, which is why your take-home pay is often much lower than your gross pay.

Frequently Asked Questions

What happens to FICA taxes if I change jobs?

Your FICA contributions follow you throughout your career. The Social Security Administration maintains a record of your earnings under your Social Security number, regardless of how many employers you have had. Each employer reports your wages to the IRS and Social Security Administration, and your earnings history accumulates over time. There is no action you need to take when you change jobs — your new employer will begin withholding FICA taxes automatically.

Can I opt out of paying FICA taxes?

No. FICA taxes are mandatory for all employees and self-employed people with net earnings of $400 or more. The only exceptions are specific groups such as certain government employees hired before particular dates and some religious sect members who have filed for exemption. If you are a U.S. citizen or resident alien working in the United States, you must pay FICA taxes.

Do I get a refund if too much FICA tax was withheld?

You can receive a refund of excess Social Security tax if you had multiple employers in the same year and your combined wages exceeded the annual cap. Each employer withholds Social Security tax up to the cap independently, so you may have overpaid. You claim this refund on your tax return using Form 1040. Excess Medicare tax withholding is also refundable if you overpaid due to multiple employers.

How do I check my FICA contribution record?

You can create a "my Social Security" account at ssa.gov to view your earnings record and see how much you have contributed to Social Security and Medicare. The site shows your reported earnings for each year and provides an estimate of your future retirement, disability, and survivor benefits. You can also request a printed statement by mail if you prefer not to use the online portal.

What if I worked in another country — do those contributions count toward Social Security?

It depends on the country and whether a totalization agreement exists between the United States and that country. Some countries have agreements with the U.S. that allow workers to combine contributions from both countries toward Social Security benefits. The Social Security Administration website lists countries with totalization agreements. If you worked abroad, contact the Social Security Administration to discuss whether your foreign earnings can be credited toward your U.S. benefit.