FICA taxes come out of your paycheck if you are an employee, and you pay both the employee and employer share if you are self-employed

FICA stands for Federal Insurance Contributions Act. The tax funds Social Security and Medicare. If you work as an employee, your employer withholds FICA from your paycheck automatically — you never see that money. If you are self-employed, you pay the full amount yourself when you file your tax return, because you are both the employee and the employer.

The rate is the same for everyone: 6.2% for Social Security and 1.45% for Medicare, totaling 7.65% for employees. Self-employed people pay 15.3% because they cover both sides. There is no cap on Medicare tax, but Social Security tax only applies to the first $168,600 of income in 2024 (this amount changes each year).

Key Takeaways

  • Employees pay 7.65% of gross wages in FICA tax, withheld by the employer before you receive your paycheck.
  • Self-employed people pay 15.3% of net self-employment income, calculated and paid when filing taxes.
  • Social Security tax stops once you reach the annual income cap, but Medicare tax continues on all income.
  • Your employer matches your FICA contribution dollar-for-dollar, but that matching amount does not appear on your paycheck.
  • FICA taxes fund only Social Security and Medicare — they are separate from federal income tax withholding.

How FICA works for W-2 employees

When you work for an employer and receive a W-2 at the end of the year, FICA is withheld from every paycheck. Your employer calculates 6.2% for Social Security and 1.45% for Medicare based on your gross pay — the amount before any deductions. This withholding appears as a separate line on your pay stub, labeled "Social Security" and "Medicare" or sometimes just "FICA."

Your employer also pays an equal amount on your behalf. If you earn $1,000 in a paycheck, your employer withholds $76.50 from you and pays another $76.50 to the government. You only see the $76.50 deduction on your stub. The employer's share is a business expense and does not reduce your take-home pay, but it is part of your total compensation cost to the company.

The withholding continues throughout the year. You do not need to do anything — it happens automatically. When you file your tax return, the W-2 your employer sends you shows exactly how much FICA was withheld, and that amount is already paid. You cannot get a refund of FICA taxes; they go directly to Social Security and Medicare trust funds.

How FICA works for self-employed people

If you are self-employed — meaning you run your own business, work as a freelancer, or are a sole proprietor — you pay both the employee and employer share of FICA. This is called self-employment tax. You calculate it on Schedule SE, a form you attach to your tax return.

Self-employment tax is based on your net income, not your gross income. Net income is what you earn after subtracting business expenses. If you made $50,000 in revenue but spent $10,000 on supplies and equipment, your net income is $40,000, and that is what FICA applies to. You pay 15.3% on that $40,000, which equals $6,120.

You pay self-employment tax once a year when you file your return, usually by April 15. Some self-employed people make quarterly estimated tax payments to avoid a large bill at tax time, but FICA is included in that calculation. Unlike employees, you do not have an employer withholding money from you throughout the year.

The income cap for Social Security tax

Social Security tax only applies to income up to a certain limit. In 2024, that limit is $168,600. Once you earn that much in a year, no more Social Security tax is withheld from your paycheck or calculated on your self-employment income. Medicare tax, by contrast, has no cap — it applies to all income, no matter how much you earn.

This matters most for high earners and people with multiple jobs. If you earn $200,000 as an employee, you pay Social Security tax only on the first $168,600. The remaining $31,400 is subject to Medicare tax but not Social Security tax. If you have two jobs and earn $100,000 at each, you may overpay Social Security tax at one job and need to claim a credit on your tax return.

The income cap changes each year based on wage growth. The IRS publishes the new limit in October for the following year. Self-employed people track their net income throughout the year to know when they will hit the cap.

Additional Medicare tax for high earners

There is an extra Medicare tax that applies only to people who earn above a certain threshold. This Additional Medicare Tax is 0.9% and applies to wages over $200,000 for single filers, $250,000 for married filing jointly, and $125,000 for married filing separately. Your employer withholds this automatically if your wages cross the threshold.

Self-employed people calculate Additional Medicare Tax on Schedule SE and pay it with their self-employment tax. Unlike the regular 15.3% self-employment tax, you do not get to deduct half of the Additional Medicare Tax on your return — it is a pure additional cost.

This tax was created in 2013 as part of the Affordable Care Act. It affects a small percentage of workers, but it is important to know about if your income is high or if you have multiple income sources.

FICA for household employees and contractors

If you hire someone to work in your home — a nanny, housekeeper, or caregiver — and that person is your employee (not an independent contractor), you must pay FICA taxes on their wages. You withhold their share from their paycheck and pay the employer share yourself. This is called household employment tax.

The threshold for owing household employment tax is low: if you pay a household employee $2,700 or more in a year (2024), you must pay FICA. You report this on Schedule H when you file your tax return. Many household employers miss this requirement, but it is a legal obligation.

Independent contractors — people you hire to do a specific job and do not supervise directly — do not trigger FICA withholding. They are responsible for their own self-employment tax. The distinction between employee and contractor matters legally and for tax purposes.

What happens if you do not pay FICA

If you are an employee, you cannot avoid FICA withholding — your employer is required by law to deduct it. If you are self-employed and do not pay self-employment tax, the IRS will assess penalties and interest on the unpaid amount. Unpaid FICA taxes can result in wage garnishment, bank levies, and liens on your property.

Self-employment tax is also important for your Social Security record. The years you pay into Social Security determine your benefit amount when you retire. If you do not pay self-employment tax, those years do not count toward your benefit, which can reduce the amount you receive later.

Frequently Asked Questions

Can I opt out of paying FICA taxes?

No. FICA is mandatory for all employees and self-employed people. The only exception is certain religious groups that have received IRS approval to be exempt, and some government employees in specific situations. For everyone else, there is no legal way to avoid it.

Why do I pay FICA if I do not think I will collect Social Security?

FICA funds both Social Security and Medicare. Even if you never collect Social Security benefits, you will almost certainly use Medicare when you turn 65. FICA taxes pay for that coverage. Additionally, Social Security also provides disability and survivor benefits to people who become disabled or die, not just retirement benefits.

What if I overpaid Social Security tax because I had multiple jobs?

You can claim a credit on your tax return. When you file, the IRS will see the total Social Security tax withheld across all your jobs and refund the overage. You do not need to do anything special — just file your return and the IRS calculates the refund automatically.

Do I pay FICA on tips?

Yes. Tips are considered wages for FICA purposes. Your employer should withhold FICA on tips you report to them. If you receive cash tips you do not report, you are still legally required to pay FICA on them when you file your tax return, though many people do not.

Is FICA the same as federal income tax?

No. FICA and federal income tax are two separate withholdings. FICA funds Social Security and Medicare. Federal income tax funds general government operations. Both appear on your pay stub, but they go to different places and are calculated differently.