FICA is two separate taxes combined into one payroll deduction

FICA stands for the Federal Insurance Contributions Act, and it funds two programs: Social Security and Medicare. When you see FICA on your pay stub, you are looking at two different tax rates stacked together. The Social Security portion funds retirement, disability, and survivor benefits. The Medicare portion funds hospital insurance and medical coverage for people 65 and older, plus some younger people with disabilities.

Your employer withholds both taxes from your paycheck and sends them to the U.S. Treasury. If you are self-employed, you pay both the employee and employer share yourself, which is called self-employment tax. The two taxes have different rates, different income caps, and different rules about who pays them.

Key Takeaways

  • Social Security tax is 6.2% of your wages (up to an annual income cap that changes each year), and your employer pays a matching 6.2%.
  • Medicare tax is 1.45% of all your wages with no income cap, and your employer pays a matching 1.45%.
  • High earners pay an additional 0.9% Medicare tax on income above $200,000 (single) or $250,000 (married filing jointly), with no employer match.
  • Self-employed people pay both the employee and employer portions of Social Security and Medicare, totaling 15.3% before any deductions.
  • You can see the exact breakdown of Social Security and Medicare withholding on your pay stub and on your annual W-2 form.

Social Security tax: 6.2% up to the wage base

The Social Security portion of FICA is 6.2% of your gross wages, taken from your paycheck. Your employer withholds this amount and also pays a matching 6.2% on your behalf. The catch is that Social Security tax only applies to wages up to a certain limit each year — called the wage base. Once you earn above that limit in a calendar year, no more Social Security tax is withheld from your paycheck for the rest of that year.

The wage base changes annually and is tied to national wage growth. For example, if the wage base is $168,600 in a given year, you pay Social Security tax on the first $168,600 you earn, but nothing on earnings above that. If you change jobs mid-year, each employer withholds Social Security tax separately up to the wage base. If your total earnings across all jobs exceed the wage base, you may have overpaid Social Security tax and can claim a refund on your tax return.

The Social Security tax you pay now goes into a trust fund that pays current retirees, disabled workers, and survivors of deceased workers. Your own Social Security benefit later will be based on your earnings record and the age at which you claim benefits.

Medicare tax: 1.45% with no income limit

The Medicare portion of FICA is 1.45% of your gross wages, with no upper limit. Unlike Social Security, there is no wage base cap — you pay Medicare tax on every dollar you earn, no matter how much you make. Your employer withholds 1.45% and pays a matching 1.45%.

The Medicare tax you pay funds Part A (hospital insurance) and Part B (medical insurance) for people 65 and older, as well as some younger people with disabilities or end-stage renal disease. When you turn 65, you become may be able to access for Medicare benefits regardless of whether you are still working.

The additional Medicare tax for high earners

If your income exceeds certain thresholds, you pay an extra 0.9% Medicare tax on the amount above the threshold. This is called the Additional Medicare Tax and was added in 2013. The thresholds are $200,000 for single filers, $250,000 for married couples filing jointly, and $125,000 for married couples filing separately.

Your employer withholds the additional 0.9% Medicare tax based on your wages alone, not your total income. If you have income from multiple jobs, self-employment, or investments, you may owe more additional Medicare tax than your employers withheld. You settle the difference when you file your tax return. Unlike the regular Medicare tax, there is no employer match on the additional Medicare tax — you pay the full 0.9%.

How self-employed people pay FICA

If you are self-employed, you do not have an employer to split FICA taxes with. Instead, you pay both the employee and employer portions yourself, which totals 15.3% (12.4% Social Security plus 2.9% Medicare). This is called self-employment tax and is calculated on your net business income on Schedule SE.

You pay self-employment tax when you file your annual tax return, usually as part of your estimated tax payments throughout the year. You can deduct half of your self-employment tax as an adjustment to income on your tax return, which reduces your taxable income slightly. The Social Security portion still has the annual wage base cap, so once your net self-employment income reaches that limit, you stop paying the 12.4% Social Security portion but continue paying the 2.9% Medicare portion on all remaining income.

Reading your pay stub and W-2

Your pay stub shows the FICA taxes withheld from each paycheck. Look for line items labeled "Social Security" or "OASDI" (Old-Age, Survivors, and Disability Insurance) and "Medicare" or "HI" (Hospital Insurance). The amounts should match the rates and wage base described above. If you see an additional line for "Additional Medicare Tax" or "Medicare 0.9%", that means your income has crossed the threshold for high earners.

At the end of the year, your employer sends you a W-2 form that summarizes your wages and FICA taxes withheld. Box 4 shows total Social Security tax withheld, and Box 6 shows total Medicare tax withheld. Box 7 shows tips you reported, which are also subject to FICA. If you had multiple jobs, you will receive a separate W-2 from each employer, and you can check whether you overpaid Social Security tax by adding up the Social Security tax from all W-2s.

Why FICA appears on every paycheck

FICA is mandatory for nearly all workers in the United States. The only common exceptions are certain government employees who are covered by their own pension systems instead, and some religious groups that have obtained exemptions. If you are an employee, your employer must withhold FICA taxes. If you are self-employed, you must pay self-employment tax if your net business income is $400 or more in a year.

FICA taxes fund programs that provide a safety net across your working life and into retirement. Social Security provides income if you become disabled, if you die and leave behind dependents, or when you reach retirement age. Medicare provides health insurance starting at age 65. Understanding what FICA consists of helps you see how much of your paycheck goes to these programs and what you are building toward.

Frequently Asked Questions

Can I opt out of paying FICA taxes?

No, FICA taxes are mandatory for nearly all employees and self-employed workers. A few exceptions exist for certain government employees and members of recognized religious groups that have filed for exemption, but these are rare. If you are a regular employee or self-employed, you must pay FICA.

What happens if I overpay Social Security tax?

If you worked for multiple employers in the same year and your total wages exceeded the Social Security wage base, you may have overpaid Social Security tax. You can claim a refund of the overpayment on your tax return. Your tax software or tax preparer can calculate this automatically when you enter all your W-2s.

Does FICA tax explore to all types of income?

FICA applies to wages and self-employment income. It does not explore to investment income, interest, dividends, or capital gains. However, if you have both wages and self-employment income, you pay FICA on both, and the Social Security wage base applies across all sources combined.

Why is the Additional Medicare Tax only on high earners?

The Additional Medicare Tax was created to help fund Medicare as the program's costs grew. It applies only to higher-income earners above the thresholds set by law. The thresholds have not changed since 2013, so more people may be subject to it over time as wages increase.

Do I pay FICA on tips?

Yes, tips are subject to FICA taxes. You must report all tips to your employer, and FICA is withheld on the total of your wages plus reported tips. Tips are shown on your W-2 in Box 7 and are included in the Social Security and Medicare tax calculations.