FICA is a federal tax that funds Social Security and Medicare

FICA stands for the Federal Insurance Contributions Act. It is a payroll tax that your employer takes directly from your paycheck every pay period. The money goes to two programs: Social Security (which pays retirement, disability, and survivor benefits) and Medicare (which pays for health insurance for people 65 and older, and some younger people with disabilities).

You will see FICA broken into two separate line items on your pay stub: Social Security tax and Medicare tax. Your employer also pays a matching amount on your behalf — you pay half, your employer pays half. Self-employed people pay both halves themselves.

Key Takeaways

  • FICA taxes fund Social Security retirement benefits and Medicare health insurance, and come out of every paycheck for most workers.
  • Social Security tax is 6.2% of your wages (up to a yearly cap), and Medicare tax is 1.45% with no cap.
  • Your employer matches both amounts, so the total FICA cost is split between you and your employer.
  • Self-employed workers pay the full FICA amount themselves, which is why they get a deduction on their tax return.
  • FICA withholding is separate from federal income tax withholding — they are two different deductions.

How much FICA comes out of your paycheck

Social Security tax is 6.2% of your gross wages, but only up to a yearly wage cap. That cap changes each year — in 2024 it was $168,600, meaning once you earn that much in a calendar year, no more Social Security tax is withheld. Medicare tax is 1.45% of your gross wages with no cap, so it continues no matter how much you earn.

If you earn over $200,000 (or $250,000 if married filing jointly), an additional 0.9% Medicare tax applies to the income above that threshold. This is sometimes called the Net Investment Income Tax or Additional Medicare Tax, and it shows as a separate line on your pay stub.

Your pay stub will show the exact dollar amount withheld for each tax. To find it, look for lines labeled "Social Security Tax," "OASDI" (Old Age, Survivors, and Disability Insurance), "Medicare Tax," or "Med Tax."

FICA is different from federal income tax

Many people confuse FICA with federal income tax because both come out of the same paycheck. They are separate taxes that fund different things. Federal income tax goes to the general Treasury and funds the government's operations. FICA goes specifically to Social Security and Medicare.

Your federal income tax withholding depends on the W-4 form you filled out when you started your job — it can vary based on your filing status, dependents, and other income. FICA withholding is automatic and the same percentage for everyone, with only the wage cap on Social Security varying by year.

Why FICA is withheld from your paycheck

FICA is withheld automatically because it is a mandatory federal tax. Congress set it up this way so that Social Security and Medicare contributions are collected steadily throughout the year rather than requiring workers to pay a lump sum at tax time. Your employer is required by law to withhold FICA and send it to the IRS on your behalf.

The withholding is also a way to fund these programs as you work — you are paying into Social Security and Medicare now so that benefits are available when you retire or if you become disabled. The money you pay in is tracked under your Social Security number, and your earnings record determines how much you will receive later.

What happens to FICA money after it is withheld

Your employer sends the FICA taxes you paid, plus the matching amount they paid, to the IRS. The IRS then deposits the money into the Social Security Trust Fund and the Medicare Trust Fund. These funds pay out current benefits to retirees, disabled workers, and Medicare beneficiaries.

You do not get a refund of FICA taxes the way you might with federal income tax. Instead, FICA contributions build your earnings record, which determines your future Social Security benefit amount and your may be able to access for Medicare. You can view your earnings record and estimated benefits by creating an account at ssa.gov.

FICA for self-employed workers

If you are self-employed, you pay both the employee and employer portions of FICA, which totals 15.3% (12.4% for Social Security up to the wage cap, plus 2.9% for Medicare). This is called self-employment tax and is calculated on your tax return using Schedule SE.

Self-employed workers can deduct half of their self-employment tax on their income tax return, which offsets some of the cost. You still pay the full amount, but the deduction reduces your taxable income. Quarterly estimated tax payments often include self-employment tax, so the amount is spread throughout the year rather than paid in one lump sum.

FICA withholding on different types of income

FICA is withheld on wages and salaries from your employer. It is also withheld on tips you report to your employer, bonuses, and commissions. If you receive a lump-sum payment like a severance or back pay, FICA is still withheld on that amount.

Some types of income do not have FICA withheld: investment income like dividends and capital gains, rental income, and income from certain types of work (such as some religious workers or certain government employees). If you have income without FICA withheld, you may owe self-employment tax on it when you file your tax return.

Frequently Asked Questions

Can I opt out of paying FICA?

No. FICA is a mandatory federal tax for almost all workers. The only exceptions are certain religious groups with IRS approval, some government employees hired before specific dates, and nonresident aliens on certain visas. If you are a regular employee, FICA will be withheld from your paycheck.

Why does my FICA tax stop partway through the year?

That is the Social Security wage cap at work. Once you earn the yearly cap amount (which changes annually), your employer stops withholding the 6.2% Social Security tax for the rest of that year. Medicare tax continues all year with no cap. If you change jobs, each employer withholds based on what you earned with them, so you might pay slightly more total if you worked for multiple employers.

Do I get FICA taxes back when I file my tax return?

No. FICA is not refundable like some federal income tax credits. You pay it throughout the year and it goes directly to Social Security and Medicare. However, if you overpaid due to working for multiple employers in one year, you can claim a credit on your tax return for the excess Social Security tax withheld.

What if I did not pay FICA because I was paid under the table?

Income paid under the table without FICA withheld means you have no earnings record for Social Security and no Medicare contribution. You are still required to report this income on your tax return and pay self-employment tax. Not doing so can affect your future Social Security benefits and create tax compliance issues.

Is FICA the same as payroll tax?

FICA is one type of payroll tax, but not all payroll taxes are FICA. Payroll taxes include FICA (Social Security and Medicare), federal income tax withholding, and state and local taxes if applicable. FICA is specifically the portion that funds Social Security and Medicare.