FICA is the money taken from your paycheck for Social Security and Medicare

FICA stands for Federal Insurance Contributions Act. It is the law that requires your employer to withhold money from your paycheck and send it to the federal government. That 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 separate from federal income tax. When you look at your pay stub, you will see FICA listed as its own line item, usually broken into two parts: Social Security tax and Medicare tax. Both come out before you see your take-home pay.

If you are self-employed, you pay FICA yourself instead of splitting it with an employer. The amount is the same, but you write the check to the IRS rather than having it withheld.

Key Takeaways

  • FICA taxes fund Social Security and Medicare, and are withheld from every paycheck if you are an employee.
  • The Social Security portion is 6.2% of your wages (up to a yearly cap), and the Medicare portion is 1.45% with no cap.
  • Your employer matches what you pay, so the total going to the government is double what appears on your stub.
  • Self-employed people pay both the employee and employer share, which is why their FICA rate is roughly double.
  • FICA withholding does not change based on how many dependents you have or your other income — it is the same percentage for everyone.

How much FICA comes out of your paycheck

The Social Security portion of FICA is 6.2% of your wages. However, this only applies to wages up to a certain limit each year. In 2024, that limit is $168,600. Once you earn more than that in a single year, no more Social Security tax is withheld from your remaining paychecks that year.

The Medicare portion is 1.45% of your wages, with no upper limit. You pay 1.45% on every dollar you earn, no matter how much you make. Additionally, if your income exceeds certain thresholds ($200,000 for single filers, $250,000 for married filing jointly), an extra 0.9% Medicare tax applies to the amount over that threshold.

Your employer withholds these amounts and also pays an equal amount on your behalf. So while you see 6.2% + 1.45% = 7.65% on your pay stub, the total FICA cost to fund Social Security and Medicare is actually double that.

Why FICA is not the same as federal income tax

Federal income tax and FICA are two separate withholdings. Federal income tax is based on your tax bracket, the number of dependents you claim on your W-4, and your total income. FICA is a flat percentage that does not change based on your personal situation.

When you fill out a W-4 at a new job, you are telling your employer how much federal income tax to withhold. That form does not affect FICA. Your employer will always withhold FICA at the same rate, regardless of what you put on your W-4.

Federal income tax goes into the general Treasury. FICA goes into two separate trust funds: the Social Security Trust Fund and the Medicare Trust Fund. The money you pay in FICA is earmarked for those specific programs.

FICA withholding if you are self-employed

If you are self-employed, you do not have an employer to split FICA with. Instead, you pay the full amount yourself through self-employment tax. This is roughly 15.3% of your net self-employment income (12.4% for Social Security, 2.9% for Medicare).

You calculate self-employment tax on Schedule SE and report it when you file your tax return. You can deduct half of what you pay as a business expense, which reduces your taxable income slightly. You may also owe estimated tax payments quarterly if you expect to owe $1,000 or more in self-employment tax for the year.

Self-employed people often find it helpful to set aside 15% to 20% of their net income throughout the year to cover both self-employment tax and federal income tax, since nothing is withheld automatically.

The Social Security wage cap and what happens when you hit it

The Social Security portion of FICA stops once you reach the yearly wage cap. In 2024, that cap is $168,600. If you earn $170,000, you pay Social Security tax only on the first $168,600.

This cap changes every year based on wage growth. The Social Security Administration announces the new cap in October for the following year. If you have multiple jobs, the cap applies to your total wages across all employers, not per job. If you overpay because your employers did not know about your other income, you can claim a credit on your tax return.

Medicare has no wage cap, so you continue paying 1.45% on every dollar, plus the extra 0.9% if you are above the income threshold.

How FICA connects to your Social Security and Medicare benefits later

The FICA you pay now creates a record of earnings that determines your future Social Security benefits. The Social Security Administration tracks your wages each year and uses your 35 highest-earning years to calculate your benefit amount when you retire.

Similarly, Medicare coverage at 65 is generally free (Part A) because you paid Medicare tax while working. If you did not pay enough Medicare tax during your working years, you may have to pay a premium for Part A coverage.

Your FICA record also matters if you become disabled or if your family members are may have access to to survivor benefits based on your earnings. The more you paid in FICA, the higher those benefits tend to be.

FICA withholding for certain types of income

FICA applies to wages and salaries. It also applies to tips you report, bonuses, and most other compensation from an employer. However, some types of income are not subject to FICA: investment income, rental income, and income from certain types of work (such as some religious workers or certain government employees).

If you receive a distribution from a retirement account like a 401(k) or IRA, FICA does not explore to that distribution. However, federal income tax may explore, and you may owe an early withdrawal penalty if you are under 59½.

Certain fringe benefits, such as health insurance premiums your employer pays on your behalf, are also exempt from FICA withholding.

Frequently Asked Questions

Can I opt out of paying FICA?

No. FICA is mandatory for all employees and self-employed people with net earnings of $400 or more per year. A few narrow exceptions exist for certain religious groups and some government employees, but these require specific documentation and approval from the IRS.

What happens to FICA if I change jobs?

Your FICA withholding continues at each new job. Your employer withholds it from your paycheck and sends it to the government. If you hit the Social Security wage cap at one job and then move to another, the new employer does not know you already paid the cap, so you may overpay. You can claim a credit on your tax return for the overpayment.

Does FICA get refunded if I overpay?

Social Security tax can be refunded if you overpay due to multiple jobs or changing employers. Medicare tax is not refunded. You claim the overpayment as a credit on your tax return when you file.

Is FICA the same amount every year?

The percentages stay the same (6.2% for Social Security, 1.45% for Medicare), but the Social Security wage cap increases most years based on national wage growth. The Medicare threshold for the extra 0.9% tax also adjusts for inflation.

What if I did not pay FICA for some years?

Years with no FICA contributions count as zero-earning years in your Social Security calculation. If you have gaps in your work history, those years lower your average benefit amount. You cannot go back and pay FICA for past years unless you are self-employed and did not file a return for that year.