FICA tax is the money taken from your paycheck for Social Security and Medicare
FICA stands for Federal Insurance Contributions Act. It is a payroll tax that 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). Your employer withholds FICA tax from each paycheck, and you contribute a percentage of your wages. Your employer also contributes a matching amount on your behalf.
FICA tax appears as two separate line items on your pay stub: one for Social Security and one for Medicare. The Social Security portion funds retirement accounts, disability insurance, and survivor benefits. The Medicare portion funds hospital insurance (Part A) and is the foundation for the other Medicare coverage options available to you later.
Unlike income tax, which varies based on your filing status and deductions, FICA tax is a flat percentage applied to all wages you earn. You pay it on every dollar of income up to a certain cap for Social Security, and on all Medicare wages with no cap.
Key Takeaways
- FICA tax is split between Social Security (6.2% of wages) and Medicare (1.45% of wages), with your employer paying an equal amount for each.
- Social Security tax only applies to wages up to an annual cap, which changes each year; Medicare tax applies to all wages with no limit.
- The money you pay into FICA during your working years creates a record that determines your future Social Security and Medicare benefits.
- Self-employed people pay both the employee and employer portions of FICA tax, totaling 15.3%, though they can deduct half of it on their tax return.
How much FICA tax comes out of your paycheck
For 2024, the Social Security portion is 6.2% of your wages, and the Medicare portion is 1.45% of your wages. Your employer withholds these amounts directly from your paycheck. Your employer also pays 6.2% for Social Security and 1.45% for Medicare on your behalf — this is a separate cost to them and does not reduce your take-home pay further.
The Social Security tax only applies to wages up to a certain limit. In 2024, that limit is $168,600 — meaning once you earn that much in a year, no more Social Security tax is withheld from your remaining paychecks. Medicare tax, however, has no wage cap. You pay 1.45% on every dollar you earn, no matter how much you make.
If you earn more than $200,000 as a single filer (or $250,000 if married filing jointly), an additional 0.9% Medicare tax is withheld on wages above that threshold. This additional tax funds the Affordable Care Act and is separate from the standard Medicare tax.
The difference between FICA tax and income tax
FICA tax and federal income tax are two separate withholdings on your paycheck. Income tax is based on your filing status, the number of dependents you claim, and deductions you take. FICA tax is a flat percentage with no adjustments — it is the same rate for everyone, regardless of income level or personal circumstances.
Income tax goes to the general Treasury and funds federal government operations. FICA tax goes into two dedicated trust funds: the Social Security Trust Fund and the Medicare Trust Fund. Money you pay into FICA creates a record of your earnings that directly affects the benefits you will receive from these programs later.
You can adjust how much income tax is withheld by updating your W-4 form with your employer. You cannot adjust FICA tax withholding — it is mandatory and the same for all employees in the same income situation.
How FICA tax creates your Social Security record
Every dollar you pay in Social Security tax (the 6.2% portion) is recorded under your Social Security number. The Social Security Administration tracks your earnings history throughout your working life. This record determines how much you will receive in Social Security benefits when you reach retirement age, become disabled, or if your family receives survivor benefits after your death.
You need 40 work credits to be covered by Social Security. You earn credits by working and paying Social Security tax — in 2024, you earn one credit for each $1,730 in wages (the amount changes yearly). Most people earn four credits per year, which means you can become covered in about 10 years of work.
You can view your earnings record and benefit estimate by creating an account at ssa.gov. The Social Security Administration recommends checking your record every few years to make sure your earnings are recorded correctly, since errors can reduce your future benefits.
How FICA tax funds Medicare
The Medicare portion of FICA tax (1.45%) goes into the Hospital Insurance Trust Fund, which pays for Medicare Part A benefits. Part A covers inpatient hospital care, skilled nursing facility care, hospice care, and some home health services. When you turn 65, you become covered by Medicare Part A automatically if you have paid Medicare tax for at least 10 years (40 quarters).
Unlike Social Security, Medicare Part A is not based on how much you earned — it is based on whether you paid Medicare tax long enough. Even if you earned very little during your working years, you still receive the same Part A coverage as someone who earned much more, as long as you meet the work requirement.
Medicare Part B (medical insurance), Part D (prescription drug coverage), and Medigap plans are optional and have separate costs. The FICA tax you pay does not cover these; you pay premiums for them when you enroll.
FICA tax for self-employed people
If you are self-employed, you pay both the employee and employer portions of FICA tax. This is called self-employment tax. The total rate is 15.3% — 12.4% for Social Security and 2.9% for Medicare. You calculate self-employment tax on Schedule SE and report it on your Form 1040.
Self-employed people pay self-employment tax on net earnings from self-employment (your business income minus business expenses). You do not pay self-employment tax on wages you earn as an employee from another job — only on your self-employment income.
The good news is that you can deduct half of your self-employment tax on your Form 1040. This deduction reduces your taxable income, which lowers your overall federal income tax. You still owe the full 15.3%, but half of it is treated as a business expense rather than personal income.
What happens if you do not pay FICA tax
FICA tax is mandatory for all employees and employers. If you are an employee, your employer is required by law to withhold FICA tax from your paycheck and send it to the IRS. You cannot opt out, and your employer cannot skip this withholding.
If you are self-employed and do not pay self-employment tax, you face penalties and interest on the unpaid amount. The IRS also may not count those years toward your Social Security work credits, which can reduce your future benefits. If you owe back self-employment tax, you can set up a payment plan with the IRS.
If your employer fails to withhold FICA tax from your paycheck, you are still liable for the tax. You would need to pay it when you file your tax return, and your employer would face penalties for the failure to withhold.
Frequently Asked Questions
Can I get a refund of FICA tax I paid?
No. FICA tax is not refundable like income tax can be. The money you pay in goes directly into the Social Security and Medicare trust funds. You cannot reclaim it, but it does create a record that determines your future benefits from these programs.
What if I worked in another country — does that count toward Social Security?
It depends on whether that country has a totalization agreement with the United States. Some countries do, which means work credits from both countries can be combined. You can contact the Social Security Administration to find out whether your work abroad counts toward your U.S. benefits.
Do I pay FICA tax on tips?
Yes. Tips are considered wages for FICA tax purposes. Your employer should withhold FICA tax on tips you report to them. If you do not report tips to your employer, you still owe self-employment tax on them when you file your tax return.
What if I have multiple jobs — do I pay FICA tax on both?
Yes. You pay Social Security tax (6.2%) on wages from each job up to the annual cap. If your combined wages from all jobs exceed the cap, you may have overpaid Social Security tax, and you can claim a refund of the overage on your tax return. Medicare tax (1.45%) applies to all wages from all jobs with no cap.
Does FICA tax explore to retirement account contributions?
It depends on the type of account. Traditional 401(k) contributions are subject to FICA tax but not federal income tax. Roth 401(k) contributions are subject to both. Contributions to a traditional IRA are not subject to FICA tax. Check with your plan administrator about how your specific retirement account is treated.