What Does FICA Mean on My Paycheck?
Understand what FICA stands for, exactly how much Social Security and Medicare taxes cost you, and what happens to the money you contribute.
FICA Stands For Federal Insurance Contributions Act
FICA is the Federal Insurance Contributions Act, the law that authorizes the collection of Social Security and Medicare taxes from employees and employers. When you see FICA on your pay stub, it is an umbrella label for the two separate payroll taxes that fund the Social Security and Medicare programs.
These taxes are separate from federal income tax. Income tax goes into the general federal budget and funds all government operations. FICA taxes go into dedicated trust funds — the Social Security Trust Fund and the Medicare Hospital Insurance Trust Fund — specifically to fund retirement, disability, and healthcare benefits.
Unlike federal income tax, which uses a progressive bracket system, FICA taxes are flat-rate taxes that apply to every dollar of earned income up to certain limits. There is no standard deduction, no filing status adjustment, and no credits to reduce your FICA liability. The rates apply uniformly.
Social Security Tax: What You Pay and Why
The Social Security portion of FICA is 6.2% of your wages, withheld by your employer. Your employer also pays an additional 6.2% on your behalf, meaning the total Social Security contribution for each employee is 12.4% of wages. As an employee, you only see the 6.2% employee portion on your pay stub.
Social Security tax applies only to wages up to the annual wage base limit. In 2024, that limit is $168,600. Once your total earnings for the year exceed this amount, Social Security withholding stops for the remainder of the year. High earners often notice their net pay increase in the second half of the year when they cross this threshold.
Social Security funds retirement benefits, survivor benefits, and disability benefits. The amount you eventually receive in Social Security retirement benefits is based on your earnings history over your working lifetime. Higher lifetime earnings generally result in higher monthly benefits, though the formula is progressive and provides proportionally more benefit to lower earners.
Medicare Tax: What You Pay and Why
The Medicare portion of FICA is 1.45% of all wages, with no income cap. Unlike Social Security, Medicare tax applies to every dollar you earn, with no upper wage base limit. Your employer also pays an additional 1.45%, bringing the total Medicare contribution to 2.9% of wages.
High earners face an additional Medicare surtax of 0.9% on wages exceeding $200,000 for single filers or $250,000 for married couples filing jointly. This additional tax is only the employee's share — there is no employer match on the Additional Medicare Tax. Your employer is required to begin withholding this tax once your wages from them exceed $200,000 in a year, regardless of your filing status.
Medicare taxes fund Medicare Part A, which covers hospital care, skilled nursing facility stays, and some home health and hospice care. Part A is generally premium-free for people who have worked and paid Medicare taxes for at least 10 years. Medicare Part B and Part D, which cover medical services and prescription drugs, are funded separately through premiums and general tax revenue.
What Happens to That Money
FICA contributions are deposited into trust funds managed by the federal government. The Social Security Trust Funds — the Old-Age and Survivors Insurance Trust Fund and the Disability Insurance Trust Fund — pay benefits to current recipients. Today's workers are funding today's beneficiaries, not their own future benefits directly.
The Medicare Hospital Insurance Trust Fund works similarly. Current FICA contributions pay for current Medicare recipients' hospital costs. The program is a pay-as-you-go system, meaning current workers support current beneficiaries rather than pre-funding their own future benefits through a personal account.
Your Social Security record tracks your earnings each year. The Social Security Administration maintains a record of every year of wages on which you paid Social Security taxes. This record is used to calculate your eventual retirement, disability, or survivor benefits. You can view your Social Security earnings record by creating an account at ssa.gov, which also provides benefit estimates based on your actual earnings history.