FICA tax has two parts: Social Security and Medicare

FICA stands for the Federal Insurance Contributions Act. When you see FICA deducted from your paycheck, that money funds two separate programs: Social Security and Medicare. The Social Security portion goes into a fund that pays retirement benefits, disability benefits, and survivor benefits. The Medicare portion funds hospital insurance, medical insurance, and prescription drug coverage for people 65 and older, plus some younger people with disabilities.

Your employer withholds both parts from your paycheck and sends them to the U.S. Treasury. If you are self-employed, you pay both the employee and employer portions yourself, which is called self-employment tax.

Key Takeaways

  • FICA tax has two components: 6.2% for Social Security (on wages up to a yearly cap) and 1.45% for Medicare (on all wages with no cap).
  • Your employer matches the amount you pay, so the total FICA contribution is double what appears on your paycheck.
  • Social Security money funds retirement, disability, and survivor benefits for workers and their families.
  • Medicare money funds hospital stays, doctor visits, and prescription drug coverage for people 65 and older and some younger people with disabilities.
  • Self-employed people pay both the employee and employer portions, totaling 15.3% of net self-employment income.

Social Security: the 6.2% portion of FICA

The Social Security part of FICA is 6.2% of your gross wages. This percentage applies only to wages up to a yearly earnings cap. In 2024, that cap is $168,600, meaning once you earn that much in a calendar year, no more Social Security tax is withheld from your paychecks for the rest of that year. The cap changes each year based on wage growth.

The money you and your employer pay into Social Security funds three types of benefits: retirement benefits (paid to you at age 62 or later), disability benefits (paid if you become unable to work), and survivor benefits (paid to your family if you die). The amount you receive later depends on how much you earned during your working years and when you start taking benefits.

Medicare: the 1.45% portion of FICA

The Medicare part of FICA is 1.45% of your gross wages, with no yearly earnings cap. This means Medicare tax is withheld on every dollar you earn, no matter how high your income goes. Your employer matches this 1.45% as well.

Medicare has four parts. Part A covers hospital stays, skilled nursing care, and hospice. Part B covers doctor visits, outpatient care, and medical equipment. Part D covers prescription drugs. Part C (Medicare Advantage) is an alternative way to receive Parts A, B, and D through a private insurance company. The money you pay through FICA helps fund these programs when you turn 65, though you may also pay premiums and cost-sharing when you use services.

The employer match: what your employer pays

Your employer is required to match your FICA contributions dollar for dollar. If you pay 6.2% for Social Security, your employer also pays 6.2%. If you pay 1.45% for Medicare, your employer also pays 1.45%. This employer match does not appear on your paycheck, but it is sent to the Treasury on your behalf.

The total FICA tax burden is therefore 15.3% of your wages when you add employee and employer portions together (12.4% for Social Security up to the wage cap, plus 2.9% for Medicare). If you are self-employed, you pay both sides yourself, though you can deduct half of your self-employment tax when you file your income tax return.

Additional Medicare tax for high earners

If your wages exceed certain thresholds, you pay an additional 0.9% Medicare tax on the amount above that threshold. The threshold is $200,000 for single filers, $250,000 for married couples filing jointly, and $125,000 for married couples filing separately. This additional tax has no employer match — only you pay it.

Your employer should withhold this additional Medicare tax automatically if your wages cross the threshold. If you have multiple jobs or other income sources, you may need to adjust your withholding to avoid owing money at tax time.

How FICA differs from income tax

FICA tax and federal income tax are separate deductions on your paycheck. Income tax funds general government operations and has no yearly earnings cap. FICA tax is dedicated to Social Security and Medicare and has specific caps and rates set by law.

You can see both deductions listed separately on your pay stub. FICA appears as lines for Social Security and Medicare withholding. Income tax appears as federal income tax withholding. State and local taxes, if you live in a state or city that has them, appear as separate lines as well.

What happens to FICA money after it is collected

The Social Security Administration and Centers for Medicare & Medicaid Services (CMS) receive FICA revenue and use it to pay current benefits and program costs. Social Security is a pay-as-you-go system: money collected from today's workers funds benefits for today's retirees and disabled people. Medicare operates similarly, though it also draws on general tax revenue to cover costs.

Both programs maintain trust funds that hold reserves. The Social Security trust fund is divided into two: the Old-Age and Survivors Insurance (OASI) trust fund and the Disability Insurance (DI) trust fund. The Medicare trust fund is called the Hospital Insurance (HI) trust fund. These reserves help cover periods when benefit payments exceed incoming FICA revenue.

Frequently Asked Questions

Why is there a Social Security wage cap but not a Medicare cap?

Social Security was designed as a wage-replacement program, so benefits are tied to your earnings history up to a maximum. Medicare is a health insurance program with costs that do not follow the same earnings-based logic. Congress set the Social Security cap to limit the program's cost and the benefit formula was designed around it. Medicare has no cap because healthcare costs affect high earners the same way they affect lower earners.

Can I opt out of paying FICA tax?

No. FICA tax is mandatory for all employees and self-employed people. The only exceptions are certain religious groups that have received a formal exemption from the IRS, some government employees hired before specific dates, and nonresident aliens on certain visas. If you are a U.S. citizen or permanent resident working in the United States, you must pay FICA.

Do I get back what I paid into FICA?

Not necessarily in the way you might expect. Social Security and Medicare are insurance programs, not savings accounts. You pay in during your working years and receive benefits later if you meet the program's conditions. Some people receive more than they paid in; others receive less. Your benefit amount depends on your earnings history, age when you start benefits, and how long you live.

What if I work for a state or local government?

Most state and local government employees pay FICA tax the same way private employees do. However, some government workers are covered by a pension system instead and do not pay Social Security tax. If you work for a government employer, your pay stub will show whether FICA is being withheld. Ask your payroll office if you are unsure.

How do I know how much FICA I have paid over my lifetime?

You can create a free account on ssa.gov and view your Social Security earnings record, which shows how much you paid into Social Security each year. This record is used to calculate your future Social Security benefit. You can also request a printed copy by mail. For Medicare, your earnings record is the same because Medicare tax is based on the same wages.