FICA is the payroll tax that funds Social Security and Medicare

FICA stands for the Federal Insurance Contributions Act. It is a payroll tax taken directly from your paycheck. The money funds two programs: Social Security (retirement, disability, and survivor benefits) and Medicare (health insurance for people 65 and older, and some younger people with disabilities).

FICA is not optional. If you are employed, your employer is required by law to withhold FICA taxes from your wages and send them to the U.S. Treasury. If you are self-employed, you pay both the employee and employer portions yourself, called self-employment tax.

You will see FICA broken into two line items on your pay stub: Social Security tax and Medicare tax. The rate for each is set by federal law and does not change based on your income or personal situation.

Key Takeaways

  • FICA taxes are split between Social Security (6.2% of your wages) and Medicare (1.45% of your wages), with your employer paying an equal amount.
  • Your employer withholds FICA from every paycheck and sends it to the federal government; you cannot opt out.
  • Self-employed people pay both the employee and employer share, totaling 15.3% for Social Security and Medicare combined.
  • The money you pay in FICA is credited to your Social Security record and determines what you may receive later in retirement or if you become disabled.
  • Medicare tax has an additional 0.9% tax on wages above a certain threshold, which varies by filing status.

How much FICA comes out of your paycheck

The Social Security portion of FICA is 6.2% of your gross wages. Your employer pays another 6.2%, for a total of 12.4% going to Social Security. However, Social Security tax only applies to wages up to a certain limit, which changes each year. In 2024, that limit is $168,600. Wages above that amount are not subject to Social Security tax.

The Medicare portion of FICA is 1.45% of your gross wages, and your employer pays another 1.45%. Unlike Social Security, there is no wage limit for Medicare tax—it applies to all your earnings, no matter how high.

If your wages exceed $200,000 (or $250,000 if married filing jointly, or $125,000 if married filing separately), an additional 0.9% Medicare tax is withheld from your paycheck. This extra tax was added in 2013 and applies only to the employee portion, not the employer match.

Where FICA money goes

Social Security tax goes into the Social Security Trust Fund. This money pays current benefits to retirees, disabled workers, and survivors of workers who have died. It also covers administrative costs of running the program.

Medicare tax goes into two trust funds: the Hospital Insurance Trust Fund (Part A, which covers inpatient hospital care) and the Supplementary Medical Insurance Trust Fund (Parts B and D, which cover doctor visits and prescription drugs). The money pays for medical services and program administration.

FICA taxes are not held in a personal account with your name on it. The system is pay-as-you-go: current workers' taxes pay current beneficiaries. Your FICA contributions build a record of earnings that determines what you may receive when you reach retirement age or if you become disabled before then.

How FICA affects your Social Security record

Every dollar you pay in Social Security tax is credited to your Social Security record. The Social Security Administration tracks your earnings year by year. To receive Social Security retirement benefits, you must have earned at least 40 credits, which typically means working about 10 years with sufficient earnings.

The amount of your future Social Security benefit is based on your highest 35 years of earnings. Years when you paid more in Social Security tax (because you earned more) count more toward your benefit calculation. If you worked fewer than 35 years, zeros are included in the calculation, which lowers your benefit.

If you become disabled before retirement age, Social Security uses your earnings record to determine whether you meet the requirements for disability benefits and how much you may receive. Similarly, if you die, your family members may receive survivor benefits based on your earnings record.

FICA for self-employed people

If you are self-employed, you pay both the employee and employer portions of FICA, called self-employment tax. The combined rate is 15.3%: 12.4% for Social Security and 2.9% for Medicare (1.45% × 2). You calculate self-employment tax on your net business income, not your gross revenue.

Self-employed people report self-employment tax on Schedule SE (Form 1040), which is filed with your annual tax return. You can deduct half of your self-employment tax as an adjustment to income on your Form 1040, which reduces your taxable income slightly.

The Social Security wage limit still applies to self-employed people. In 2024, you pay the 12.4% Social Security tax only on net self-employment income up to $168,600. Income above that is not subject to the Social Security portion, but the 2.9% Medicare tax (plus the 0.9% additional Medicare tax if applicable) applies to all net self-employment income.

FICA withholding and your tax return

FICA taxes withheld from your paycheck are reported on your W-2 form in boxes 4 (Social Security tax withheld) and 6 (Medicare tax withheld). You will receive a W-2 from each employer by January 31 of the year following the tax year.

You cannot claim FICA taxes as a deduction or credit on your tax return. The money is withheld and sent to the government automatically. However, if you overpaid FICA—for example, if you worked for multiple employers and your combined wages exceeded the Social Security wage limit—you may be able to claim a credit for the excess Social Security tax on your Form 1040.

Self-employed people report FICA (self-employment tax) on Schedule SE and transfer the amount to Form 1040. As mentioned, you can deduct half of the self-employment tax paid, which lowers your adjusted gross income.

Why FICA matters for your future benefits

FICA is the only way to build credits toward Social Security retirement and disability benefits. Without FICA contributions, you will not have a Social Security record and will not be able to receive these benefits later.

The amount you pay in FICA during your working years directly affects the size of your benefit check. Higher lifetime earnings mean higher benefits. This is why your Social Security statement (which you can view online at ssa.gov) shows your earnings record and an estimate of your future benefit based on your FICA contributions to date.

If you have gaps in your work history—years when you did not pay FICA taxes—those years count as zeros in your benefit calculation. Some people can exclude certain years (such as years when they were raising young children) under special rules, but generally, the more years you work and pay FICA, the higher your benefit will be.

Frequently Asked Questions

Can I opt out of paying FICA taxes?

No. FICA 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, and some government employees hired before specific dates who are covered by alternative retirement systems. If you are a regular employee, you cannot opt out.

What happens to FICA taxes if I change jobs?

Your FICA contributions follow you throughout your career. Each employer withholds FICA and reports it to Social Security under your Social Security number. All your earnings are combined into one Social Security record, regardless of how many jobs you have held.

Do I get FICA taxes back if I don't use Social Security or Medicare?

No. FICA is a tax, not a savings account. You cannot reclaim the money you paid in. However, you may receive benefits from Social Security or Medicare later in life, or your family may receive survivor benefits if you die. The amount depends on your earnings record and other factors.

Why is there a wage limit for Social Security tax but not Medicare tax?

Congress set the Social Security wage limit to keep the program sustainable. The limit means high earners pay a smaller percentage of their total income in Social Security tax. Medicare has no wage limit because it is designed to cover all workers equally, regardless of income level.

How do I check my FICA contributions and earnings record?

You can create an account at ssa.gov and view your Social Security Statement online. It shows your earnings history year by year and an estimate of your future retirement benefit. You should review it regularly to make sure the earnings are correct, as errors can affect your future benefits.