Understanding FICA: Your Guide to Social Security and Medicare Contributions

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FICA (the Federal Insurance Contributions Act) is the U.S. federal payroll tax that funds Social Security and Medicare. Employers withhold it from employees’ wages and pay a matching share themselves. It pays for retirement, disability and survivor benefits through Social Security and for hospital insurance through Medicare. Self-employed people pay the equivalent tax under a companion law, the Self-Employment Contributions Act (SECA).

What FICA stands for and what it funds

The acronym comes from the law’s name: Federal Insurance Contributions Act. The payroll tax was created alongside Social Security in 1935 under President Franklin D. Roosevelt, who tied benefits to workers’ own contributions rather than to annual appropriations from general federal revenue, so that future politicians would find them harder to cut or redirect.

Medicare, with a separate payroll tax to fund hospital insurance, was added in 1965 when President Lyndon B. Johnson signed it into law. The IRS collects the tax and administers withholding rules, while the Social Security Administration (SSA) runs the benefit programs and sets the annual wage base.

The Social Security Administration also runs SSI, which pays benefits to people with limited income and resources. SSI is not funded by FICA or SECA. It is paid from general tax revenue, even though the same agency handles it.

How FICA is calculated

FICA is a flat percentage of covered wages, not a graduated tax like the federal income tax. Two pieces are calculated separately because they follow different rules.

Social Security portion and the wage base

The Social Security tax rate is 12.4% in total, split evenly:

• Employee share: 6.2%, withheld from pay
• Employer share: 6.2%, paid by the employer on top of wages

The tax applies only up to the Social Security wage base (also called the contribution and benefit base). Wages above it are not subject to Social Security tax for the rest of the year. The base was $160,200 for 2023 and $168,600 for 2024, and the SSA adjusts it each year based on changes in the National Average Wage Index.

The maximum employee Social Security contribution each year is therefore 6.2% of that year’s wage base, for example $10,453.20 for 2024 ($168,600 × 0.062).

Medicare portion and the Additional Medicare Tax

The Medicare tax rate is 2.9% in total:

• Employee share: 1.45%
• Employer share: 1.45%

Medicare has no wage base. Every dollar of covered wages is taxed.

High earners also owe the Additional Medicare Tax of 0.9%, which took effect in 2013 under the Affordable Care Act. It applies to wages above $200,000 for single filers, $250,000 for married couples filing jointly and $125,000 for married individuals filing separately. Only the employee pays it, so an employee’s Medicare rate on wages above the threshold can reach 2.35% (1.45% + 0.9%), while the employer stays at 1.45%.

Your employer must start withholding the extra 0.9% once your wages from that employer pass $200,000 in a calendar year, regardless of your filing status. Your actual liability depends on your filing status and combined household wages and is settled on your tax return, so a married couple with two incomes can owe more than was withheld, or have had some withheld that they do not owe.

The FICA rates themselves have mostly stayed the same since 1990: 7.65% for employees and 7.65% for employers on wages under the wage base.

Worked examples

The examples below are hypothetical and use 2024 figures. They assume all wages are FICA-covered and come from a single employer.

Example 1: $50,000 salary

• Social Security: $50,000 × 0.062 = $3,100
• Medicare: $50,000 × 0.0145 = $725
• Employee FICA total: $3,825

The employer pays a matching $3,825, so $7,650 in total goes to the two programs for this worker.

Example 2: $250,000 salary, single filer

• Social Security: $168,600 (wage base) × 0.062 = $10,453.20
• Medicare: $250,000 × 0.0145 = $3,625
• Additional Medicare Tax: ($250,000 − $200,000) × 0.009 = $450
• Employee FICA total: $14,528.20

The employer pays $10,453.20 plus $3,625, or $14,078.20. The $450 difference is the Additional Medicare Tax, which has no employer match. This worker’s Social Security withholding stops once cumulative wages reach $168,600, so later paychecks show a larger take-home amount.

Example 3: Two employers in the same year

Suppose a worker earns $100,000 at each of two jobs in 2024. Each employer applies the wage base separately, so each withholds $6,200 in Social Security tax, for $12,400 total. The maximum employee Social Security tax for 2024 was $10,453.20, so $1,946.80 was over-withheld. The worker claims the excess as a credit on their federal income tax return. Employers do not get their excess employer share back, because each employer’s obligation is computed independently.

Who pays FICA

In general, anyone who earns wages from covered employment in the U.S. pays FICA, and their employer pays the matching share. Age does not matter: workers who are already collecting Social Security still pay FICA on their wages. Withholding is not optional, and an employee cannot opt out by filing a different form.

There are narrow exceptions, including:

• Certain students employed by the school, college or university where they are enrolled and regularly attending classes
• Some nonresident aliens in specific visa categories (such as certain F, J, M and Q visa holders) for a limited period
• Members of certain religious groups that are conscientiously opposed to insurance benefits, who obtain an approved exemption
• Some state and local government employees covered by a qualifying public retirement system instead of Social Security

FICA for the self-employed: SECA

Sole proprietors, independent contractors and partners who earn self-employment income have no employer to pay the matching half. Under SECA, they pay both shares: 12.4% for Social Security and 2.9% for Medicare, for 15.3% in total, plus the 0.9% Additional Medicare Tax on self-employment income above the applicable threshold.

Several mechanics soften this:

• The 92.35% adjustment. The tax applies to 92.35% of net earnings from self-employment, not to the full net profit. This mirrors the fact that employees do not pay FICA on the employer’s share.
• The deduction for half. The self-employed can deduct the employer-equivalent half of self-employment tax when calculating adjusted gross income. This reduces income tax, not the self-employment tax itself.
• The $400 floor. Self-employment tax generally applies when net earnings from self-employment are $400 or more for the year.
• Coordination with wages. If you have both a job and a side business, wages count toward the Social Security wage base first, and only the remaining room is available for self-employment income.

Hypothetical example (2024): A freelancer with $60,000 in net profit and no wage income calculates $60,000 × 0.9235 = $55,410 of net earnings subject to tax. Self-employment tax is $55,410 × 0.153 = $8,477.73, and half of that, about $4,238.87, is deductible for income tax purposes. Clients often request a Form W-9 from freelancers, a sign that no FICA is withheld and the tax will be paid through estimated payments and the annual return.

What counts as FICA wages

FICA wages are not the same as your gross income or your taxable wages for federal income tax, which is why the Social Security and Medicare wage boxes on a W-2 often differ from Box 1.

• Traditional 401(k) and 403(b) deferrals reduce income-tax wages but are still subject to FICA.
• Pre-tax health premiums through a Section 125 cafeteria plan are generally excluded from both income tax and FICA.
• Tips, bonuses and most taxable fringe benefits are generally FICA wages.
• Investment income such as dividends, interest and capital gains is not subject to FICA at all. (High earners may owe a separate 3.8% Net Investment Income Tax, which is not part of FICA.)

Reading FICA on your pay stub

Pay stubs label the 6.2% portion “FICA,” “OASDI” or “Social Security,” and the 1.45% portion “Medicare” or “Med.” “FICA EE” is the employee share withheld from your pay; “FICA ER” is the employer share, which some stubs show for information even though it is not deducted from you. “Federal FICA withheld” is the employee amount sent to the government on your behalf.

The employer’s share does not appear in your gross pay and is not taxable income to you, though an employer’s quoted “total compensation” may or may not include it.

Limitations and the funding outlook

FICA’s flat structure has consequences that are easy to miss:

• The tax is regressive above the wage base. Because Social Security tax stops at the cap, a worker earning several times the wage base pays a smaller share of total wages in Social Security tax than someone earning below it. The Additional Medicare Tax partly offsets this on the Medicare side.
• Paying FICA does not guarantee a specific benefit. Social Security benefits depend on your earnings record and credits, and Medicare eligibility has its own rules. Contributions fund current beneficiaries, not an individual account.
• The trust fund faces a projected shortfall. In its 2023 long-term projections, the Congressional Budget Office estimated the Social Security trust fund would be exhausted in 2033, after which incoming payroll taxes would cover only part of scheduled benefits, because beneficiaries are growing relative to the workers paying in. Proposals include raising the retirement age, reducing benefits for higher earners and raising payroll tax rates or the wage base, so future FICA rules may differ from today’s.

FAQs

The Bottom Line

Every wage earner and employer in covered U.S. employment pays FICA, and self-employed workers pay the full amount through SECA. Check that your pay stub withholds the correct shares, and claim any excess Social Security tax as a credit if two employers together withheld more than the yearly maximum. Freelancers should plan estimated payments for self-employment tax, because no one withholds it for them.