FICA taxes are federal payroll deductions that fund Social Security and Medicare—two crucial social programs providing retirement income, disability support, survivor benefits, and healthcare coverage for seniors and certain disabled individuals. Established by the Federal Insurance Contributions Act (FICA) of 1935 and expanded in 1965 to include Medicare, these taxes operate as a pay-as-you-go system where current workers fund the benefits for current recipients.
How FICA Taxes Work
When you receive a paycheck, FICA taxes are withheld automatically. The total FICA tax rate is split between Social Security and Medicare components, and typically shared equally between you and your employer. If you are self-employed, you pay the full amount yourself through self-employment tax.
- Employee and Employer Contributions: Employees pay 6.2% for Social Security and 1.45% for Medicare; employers match these amounts.
- Self-Employed Individuals: Those who work for themselves pay both shares, totaling 12.4% for Social Security and 2.9% for Medicare, which together make up the self-employment tax. As per IRS guidelines (see our Self-Employment Tax article), half of this tax can be deducted when calculating your adjusted gross income.
Components of FICA Taxes
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Social Security Tax (OASDI): This tax funds Old-Age, Survivors, and Disability Insurance benefits. For 2025, the Social Security wage base limit is $168,600, meaning you pay Social Security tax only on earnings up to this limit. Income above this amount is not taxed.
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Medicare Tax (HI): Medicare tax applies to all earnings with no wage base limit. It funds health insurance for retirees aged 65+, some disabled individuals, and those with End-Stage Renal Disease.
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Additional Medicare Tax: High earners pay an extra 0.9% Medicare tax on wages above $200,000 for single filers, or $250,000 for married filing jointly. This additional tax is only paid by employees, not employers.
| FICA Tax Component | Employee Share | Employer Share | Self-Employed Total | Wage Base Limit (2025) |
|---|---|---|---|---|
| Social Security | 6.2% | 6.2% | 12.4% | $168,600 |
| Medicare | 1.45% | 1.45% | 2.9% | No limit |
| Total FICA | 7.65% | 7.65% | 15.3% |
Who Pays FICA Taxes?
- Employees: FICA taxes are withheld automatically from paychecks.
- Employers: Required by law to match employee contributions and remit both to the IRS.
- Self-Employed: Responsible for full FICA tax payment, typically through quarterly estimated tax payments.
Why FICA Taxes Matter
Your FICA contributions serve as your financial safety net:
- Retirement Income: Funds Social Security benefits that provide steady retirement income.
- Disability Support: Offers financial help if you become disabled.
- Survivor Benefits: Provides support to your family in case of your death.
- Healthcare Coverage: Helps finance Medicare, which assists with healthcare costs in retirement.
Common Misunderstandings
- FICA is not a general income tax; it exclusively funds Social Security and Medicare.
- Your FICA contributions go into a collective trust fund, not a personal account.
- Self-employed individuals do pay FICA taxes—both the employer and employee portions—as self-employment tax.
FAQs
Is FICA a federal tax?
Yes, it’s a federal tax collected to fund Social Security and Medicare.
Can I get a refund on FICA taxes?
Generally no, except in rare cases like overpayment due to multiple employers.
Does everyone pay FICA taxes?
Most workers do, but exemptions apply for certain non-resident aliens, students, and some government employees with alternative retirement systems.
For more detailed information, see our Social Security Tax and Medicare Tax glossary posts.
References:
- IRS. “Tax Topic 751: Social Security and Medicare Withholding Taxes (FICA).” https://www.irs.gov/taxtopics/tc751
- Social Security Administration. “Contribution Rates.” https://www.ssa.gov/oact/progdata/taxRates.html
- Social Security Administration. “Federal Insurance Contributions Act (FICA).” https://www.ssa.gov/employer/hbook/sec3.htm
For additional insights, visit the official IRS Social Security and Medicare Tax page.