What FICA and Social Security tax are, and how much comes out

FICA stands for Federal Insurance Contributions Act. It is the law that requires you and your employer to pay taxes that fund Social Security and Medicare. When you look at your paycheck, you will see two separate deductions: Social Security tax at 6.2% of your wages, and Medicare tax at 1.45% of your wages. Your employer pays an equal amount on top of what you earn — that money does not show on your paycheck, but it counts toward your Social Security record.

The 6.2% Social Security tax applies only to earnings up to a certain amount each year. In 2024, that limit is $168,600. Once you earn more than that in a single year, Social Security tax stops coming out of your paycheck for the rest of that year. Medicare tax, by contrast, has no earnings limit — it comes out of every dollar you make, no matter how much you earn.

If you are self-employed, you pay both the employee and employer portions yourself. That means you pay 12.4% for Social Security (up to the annual limit) and 2.9% for Medicare, for a total of 15.3% on net self-employment income. You can deduct half of this amount when you file taxes.

Key Takeaways

  • Social Security tax is 6.2% of your wages up to $168,600 per year in 2024, and your employer pays an equal 6.2%.
  • Medicare tax is 1.45% of all your wages with no upper limit, and your employer pays an equal 1.45%.
  • If you earn over $200,000 as a single filer (or $250,000 married filing jointly), an additional 0.9% Medicare tax applies to income above that threshold.
  • Self-employed workers pay both the employee and employer share, totaling 15.3% for FICA taxes combined.
  • The Social Security earnings limit changes each year based on wage growth in the economy.

The Social Security tax earnings cap and why it matters

The Social Security tax only applies to earnings below a certain threshold, which is called the earnings cap or wage base. This limit is adjusted every January based on how much average wages grew the year before. In 2024, the cap is $168,600. In 2023, it was $160,200. The year before that, it was $147,000.

This means if you earn $180,000 in 2024, you will pay Social Security tax only on the first $168,600 of that income. The remaining $11,400 is not subject to Social Security tax. This cap affects high earners most directly, but it also means that once you reach it partway through the year, you will see your paycheck increase slightly because Social Security tax stops coming out.

If you work for more than one employer in the same year, each employer withholds Social Security tax based on what they pay you alone — they do not know what your other jobs pay. If your combined earnings exceed the cap, you will have overpaid Social Security tax. You can claim a refund for the overpayment when you file your tax return.

Medicare tax and the additional tax for higher earners

Medicare tax is simpler than Social Security tax because it has no earnings limit. You pay 1.45% on every dollar of wages, and your employer pays 1.45%. If you are self-employed, you pay 2.9% on your net self-employment income.

There is an additional Medicare tax of 0.9% that applies if your income exceeds certain thresholds. For single filers, this extra tax kicks in at $200,000 of wages. For married couples filing jointly, it starts at $250,000. For married people filing separately, it begins at $125,000. This additional 0.9% comes out of your paycheck and is withheld by your employer, just like the regular Medicare tax.

The additional Medicare tax applies to all income above the threshold, with no upper limit. Unlike Social Security tax, there is no cap on how much Medicare tax you pay in a year. If you have income from multiple sources — wages, self-employment, investment income — your employer may not withhold enough additional Medicare tax. You may owe more when you file your tax return.

How FICA taxes are used

The Social Security portion of your FICA taxes (6.2% from you, 6.2% from your employer) goes into the Social Security Trust Fund. This money is used to pay benefits to people who are retired, disabled, or survivors of workers who have died. Your contributions build your own Social Security record, which determines how much you can receive when you reach retirement age.

The Medicare portion (1.45% from you, 1.45% from your employer) funds the Medicare program, which provides health insurance to people age 65 and older and some younger people with disabilities. Part A of Medicare, which covers hospital stays, is funded entirely by these payroll taxes. Part B and Part D, which cover doctor visits and prescription drugs, are funded partly by these taxes and partly by general tax revenue and premiums.

Both the Social Security and Medicare Trust Funds keep reserves. Social Security's reserves are projected to be depleted in 2034 if no changes are made to the program, though the program would still collect enough in taxes to pay about 80% of scheduled benefits. Medicare's Hospital Insurance Trust Fund faces a similar timeline. These projections change as the economy and population change.

Self-employment tax and what it covers

If you are self-employed, you pay self-employment tax instead of having an employer withhold FICA taxes. Self-employment tax covers both the employee and employer portions of Social Security and Medicare taxes. You calculate it on your net self-employment income — that is, your business income minus business expenses.

The self-employment tax rate is 15.3%: 12.4% for Social Security (up to the annual earnings cap) and 2.9% for Medicare. You pay this tax when you file your annual tax return, usually in quarterly estimated tax payments throughout the year. You can deduct half of your self-employment tax as a business expense on your tax return, which reduces your taxable income.

Self-employed workers should set aside money throughout the year to cover self-employment tax, because it is not withheld from paychecks the way it is for employees. Many self-employed people set aside 15% to 20% of their net income to cover both self-employment tax and income tax. If you have questions about how much to set aside, a tax professional or accountant can help you estimate based on your specific situation.

What happens if you work past full retirement age

You continue to pay Social Security and Medicare taxes on your wages even after you reach full retirement age and start receiving Social Security benefits. There is no age at which FICA taxes stop coming out of your paycheck — you pay them for as long as you work and earn wages.

However, if you continue working and earning, your Social Security benefit may increase. The Social Security Administration recalculates your benefit each year to include your most recent earnings. If your recent earnings are higher than some of your earlier years, they may replace lower-earning years in the calculation, which can raise your monthly benefit. This is one reason some people choose to work longer — not just to delay claiming benefits, but to increase the amount they receive.

Questions to ask your employer or tax professional

If you do not understand the deductions on your paycheck, ask your employer's payroll or human resources department to explain them. They can tell you exactly how much Social Security and Medicare tax is being withheld and why. If you are self-employed or have income from multiple sources, a tax professional can help you understand your total FICA obligations and make sure you are withholding enough throughout the year.

If you think you have overpaid Social Security tax — for example, because you worked for multiple employers — keep your W-2 forms and ask a tax professional or the IRS about claiming a refund. You can also call the Social Security Administration at 1-800-772-1213 if you have questions about how your earnings are being recorded on your Social Security record.

Frequently Asked Questions

Why do I pay Social Security tax if I might not get it all back?

Social Security is designed as insurance, not a savings account. You pay into it to protect yourself and your family if you become disabled or die, and to provide income in retirement. Most people do receive more in benefits than they paid in taxes, especially if they live into their 80s. The program also provides benefits to your spouse and children if you die, which many people do not realize.

Does Social Security tax come out of my paycheck if I am over 65?

Yes. You pay Social Security and Medicare taxes on all wages as long as you work, regardless of your age. Even if you are already receiving Social Security benefits, if you are still employed, FICA taxes come out of your paycheck. The taxes you pay while working may increase your future benefit amount.

What is the difference between FICA tax and income tax?

FICA taxes fund Social Security and Medicare specifically. Income tax is separate and funds general government operations. Both come out of your paycheck. FICA has a cap on Social Security tax but not Medicare tax. Income tax has no cap and varies based on your tax bracket and filing status.

If I work for two employers, do I pay double FICA tax?

Yes, each employer withholds FICA tax based on what they pay you. If your combined earnings exceed the Social Security cap, you will overpay Social Security tax. You can claim a refund for the overpayment on your tax return. You will not overpay Medicare tax because it has no earnings limit.

Can I opt out of paying FICA taxes?

No. FICA taxes are required by law for all employees and self-employed people. The only exceptions are certain religious groups and some government employees hired before specific dates. If you have questions about whether an exception applies to you, contact the IRS or a tax professional.