FICA tax is a kind of payroll tax that helps fund social benefits programs, namely Social Security and Medicare. FICA stands for the Federal Insurance Contributions Act.
When you earn money from a job, you typically owe FICA tax as well as income taxes. There are few exceptions to paying FICA tax. Read on to learn more about how FICA tax works and where that money goes.
Key Points
• FICA tax is a payroll tax funding Social Security and Medicare.
• Employees typically pay 7.65% FICA tax, split into 6.2% for Social Security and 1.45% for Medicare.
• Self-employed individuals pay 15.3% FICA tax, covering both Social Security and Medicare, but may deduct the other half when filing their taxes.
• FICA tax provides benefits for retirees, the disabled, and survivors of those groups, as well as health care coverage, but reduces take-home pay.
• Certain groups, including religious members and some government workers and nonresidents, are exempt from FICA taxes.
What Is FICA Tax?
If you’re just starting out in your career or filing taxes for the first time, payroll taxes might be new to you.
FICA, or Federal Insurance Contributions Act, withholding is a type of tax that helps fund Social Security benefits programs, including old-age, survivors, and disability insurance, as well as Medicare, the federal health insurance program for people 65 years of age and older. These funds pay for lost income as well as for health coverage for those in need.
Typically, FICA tax is assessed at 15.3% of earnings, and it makes a major contribution to revenue for the U.S. Federal government, currently tracking at 35% of that influx of funds.
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How FICA Tax Works
If you work for an employer, they take care of income tax withholding as well as withholding for FICA tax. These taxes are deducted from your paycheck automatically.
If you’re self-employed, however, you’ll be in charge of paying these taxes yourself. And because you don’t have automatic withholding, you may need to pay quarterly taxes throughout the year.
Total FICA taxes for both Social Security and Medicare equal 15.3%. This is a flat rate tax, and the FICA tax rate 2024 and FICA tax rate 2025 have not changed. Here’s a closer look at the breakdown:
• If you’re an employee, you’ll pay only half this amount, or 7.65%. This breaks down to 6.2% for Social Security and 1.45% for Medicare.
• If you’re self-employed, you’ll need to pay twice that for each, or the full 15.3%. However, though you pay more, you may also be able to deduct half of the amount when you file your taxes.
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FICA Tax Rates for 2024 and 2025
As you’re preparing for tax season, there are a couple important things to know about FICA tax rates.
• First, while the amount of income tax you pay will depend on your tax bracket, all taxpayers pay FICA tax at the same rate. See the chart below.
• Also, you don’t necessarily pay FICA taxes on all of your income. In 2024, you and your employer will only pay Social Security taxes on the first $168,600 of your earnings. In 2025, that number jumps to $176,100.
• In both 2024 and 2025, single filers making $200,000, joint filers making $250,000, and married individuals filing separately making $125,000 owe an additional 0.9% for Medicare taxes.
FICA Tax: What an Employee Pays vs What an Employer Pays
| Employee | Employer | |
|---|---|---|
| Social Security tax | 6.2%
• On the first $168,600 in 2024 • On the first $176,100 in 2025 |
6.2%
• On the first $168,600 in 2024 • On the first $176,100 in 2025 |
| Medicare tax | 1.45% | 1.45% |
| Total | 7.65% | 7.65% |
| Additional Medicare tax | 0.9% for single filers only on earnings over $200,000, joint filers on earnings over $250,000, and married filers, filing separately, on earnings over $125,000 |
Example FICA Tax Calculations
In 2025, say your pretax income is $100,000. If you’re employed, your employer will pay $7,650, and you’ll be on the hook for the same amount. If you’re self-employed, you’ll need to pay $15,300, though you may be able to deduct $7,650 from your taxes.
Say you’re a single filer making $201,000 per year. You’ll only owe Social Security taxes of 6.2% on your first $176,100. That’s $10,918.20. You won’t owe Social Security tax on the remaining $23,901. That said, there’s no wage base limit for Medicare tax. In other words, all of your wages are subject to this tax. In this case you would owe 1.45% plus the 0.9% surtax, so 2.35% or $4,723.50.
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Pros and Cons of FICA Tax
While FICA taxes take a bite out of your take-home pay, they also provide important benefits for older Americans.
Pros of FICA Tax
Here are the upsides of FICA tax:
• Social Security benefits are designed to provide a stable source of monthly income for those who are retired, disabled, or relied on the income of someone who has died.
• Medicare provides important health care benefits to those 65 and older, including hospital insurance, medical insurance, and prescription drug coverage.
• Your contributions help pay benefits for current retirees and other beneficiaries. Future workers will help pay for yours. Any surplus money taken in by the federal government through these taxes is deposited in the Social Security trust fund, which is designed to secure benefits for future generations.
Cons of FICA Tax
The downsides of FICA tax include:
• This tax takes a bite out of one’s take-home pay
• Social Security is forecast to become insolvent by 2035, unless adjustments are made to the benefits provided or the taxes that fund the program.
Why Do I Have to Pay FICA Tax?
Simply put, FICA tax is mandated by federal law. FICA tax is mandatory for nearly everyone who earns income. Some exemptions do apply, including for members of certain religious organizations, some government employees, foreigners in the U.S. with temporary visas, and self-employed individuals who earn less than $400 per year.
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How to Reduce FICA Taxes
FICA tax is typically calculated using your gross income, and so the only way to pay less is to earn less or to adjust the withholding status on your W4 form, which may alter the amount.
However, it is worth noting that FICA tax is only paid on earned income. Unearned income is not subject to this tax and may include such investment income as:
• Taxable interest
• Ordinary dividends
• Capital gain distributions
To avoid tax filing mistakes, it may be helpful to speak with a tax professional.
The Takeaway
If you earn income from a job, you’ll likely owe FICA tax. But the good news is these taxes go toward providing you with benefits that help you later in life. In the meantime, if you’re employed, your employer will help you out, paying for half of your FICA taxes. If you’re self-employed, you’ll have to pay the full amount yourself. But you can catch a break by deducting half the amount you pay, which can benefit your personal finances.
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FAQ
Is FICA the same as Social Security tax?
FICA, or Federal Insurance Contributions Act, tax includes more than just Social Security tax. It includes two components: Social Security tax and Medicare tax.
Why am I paying FICA tax?
You pay FICA tax in order to support social benefits programs, including Social Security and Medicare. These help those who have lost income due to retirement, disability, or death and can provide health coverage.
Do I get my FICA tax back?
The money you pay in FICA tax won’t be handed back to you when you’re older. However, you will likely be able to participate in Social Security and Medicare, which these taxes support.
How much is the FICA tax?
In total, the FICA tax is 15.3%. If you’re employed, your employer will pay half of that, and you’ll only have to pay 6.2% in Social Security taxes and 1.45% in Medicare taxes. However, if you’re self-employed, you’ll need to pay the full amount yourself but may be able to take half the amount as a deduction when filing your taxes.
Who is exempt from FICA taxes?
Most people have to pay FICA taxes. There are several groups that may be exempt including members of certain religious organizations, some government workers, nonresident aliens, and self-employed individuals who earn less than $400 per year.
At what age is Social Security no longer taxed?
Social Security benefits may be taxable no matter what age you are if your income exceeds a certain level.
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