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Understanding FICA Taxes: Social Security and Medicare Explained

Learn everything about FICA taxes, including Social Security and Medicare withholding, wage limits, and how these taxes fund your future benefits.

January 20, 20255 min read

FICA taxes appear on every paycheck, but many workers don't fully understand what they're paying for. Let's break down these important payroll taxes that fund Social Security and Medicare.

What is FICA?

FICA stands for the Federal Insurance Contributions Act. It's the law that requires employers and employees to pay taxes that fund two major programs:

  • Social Security (retirement, disability, and survivor benefits)
  • Medicare (health insurance for people 65 and older)

    • FICA Tax Rates for 2025

    Social Security Tax

  • Employee Rate: 6.2% of wages
  • Employer Rate: 6.2% of wages (matched)
  • Total: 12.4% combined
  • Wage Base Limit: $168,600 (2025)
  • Maximum Tax: $10,453.20 per year

    • Once you earn more than $168,600 in a year, you stop paying Social Security tax on additional earnings.

    Medicare Tax

  • Employee Rate: 1.45% of all wages
  • Employer Rate: 1.45% of all wages (matched)
  • Total: 2.9% combined
  • No Wage Limit: Applies to all earnings

    • Additional Medicare Tax

    High earners pay an extra 0.9% Medicare tax on wages above:

  • $200,000 for single filers
  • $250,000 for married filing jointly
  • $125,000 for married filing separately

    • Important: Employers don't match the additional 0.9% - you pay this alone.

    How FICA Appears on Your Paycheck

    You'll typically see these deductions:

  • OASDI or Social Security: 6.2% of wages
  • Medicare or Med: 1.45% of wages
  • Add'l Medicare: 0.9% (if applicable)

    • Example Calculations

    Example 1: $60,000 Annual Salary

    Per Paycheck (bi-weekly, 26 pay periods)

  • Gross Pay: $2,307.69
  • Social Security: $143.08 (6.2%)
  • Medicare: $33.46 (1.45%)
  • Total FICA: $176.54

    • Annual FICA Taxes

  • Social Security: $3,720
  • Medicare: $870
  • Total: $4,590

    • Example 2: $200,000 Annual Salary

    Annual FICA Taxes

  • Social Security: $10,453.20 (maxed out at $168,600)
  • Medicare: $2,900 (1.45% of $200,000)
  • Additional Medicare: $0 (right at threshold)
  • Total: $13,353.20

    • Example 3: $300,000 Annual Salary

    Annual FICA Taxes

  • Social Security: $10,453.20 (maxed out)
  • Medicare: $4,350 (1.45% of $300,000)
  • Additional Medicare: $900 (0.9% of $100,000 over threshold)
  • Total: $15,703.20

    • What Do These Taxes Fund?

    Social Security Benefits

    Your FICA taxes fund three types of benefits:

  • Retirement Benefits: Monthly payments when you retire
  • Disability Benefits: Income if you become disabled
  • Survivor Benefits: Payments to your family if you die

    • You earn "credits" toward these benefits based on your earnings. In 2025, you earn one credit for each $1,730 in earnings, up to four credits per year.

    Medicare Benefits

    Medicare provides health insurance for:

  • People 65 and older
  • Younger people with certain disabilities
  • People with End-Stage Renal Disease

    • Medicare has several parts:

  • Part A: Hospital insurance (funded by FICA)
  • Part B: Medical insurance (funded by premiums and general revenue)
  • Part C: Medicare Advantage (private plans)
  • Part D: Prescription drug coverage

    • Self-Employment and FICA

    If you're self-employed, you pay both the employee and employer portions:

  • Self-Employment Tax: 15.3% (12.4% Social Security + 2.9% Medicare)
  • You can deduct half of this tax on your income tax return
  • Same wage base limits apply

    • Example: $80,000 self-employment income

  • Self-Employment Tax: $12,240
  • Tax Deduction: $6,120

    • Common FICA Questions

    Can I opt out of FICA taxes?

    Generally, no. Most workers must pay FICA taxes. Limited exceptions exist for:

  • Certain religious groups
  • Some foreign government employees
  • Students working at their university

    • Will I get my FICA taxes back?

    Not directly, but you're earning credits toward future Social Security and Medicare benefits. Think of it as mandatory retirement and health insurance.

    What if I work multiple jobs?

    Each employer withholds FICA taxes separately. If your combined wages exceed $168,600, you'll overpay Social Security tax. You can claim a refund when you file your tax return.

    Do FICA taxes apply to bonuses?

    Yes, bonuses are considered wages and subject to FICA taxes at the same rates.

    Maximizing Your FICA Benefits

    1. Work at Least 10 Years

    You need 40 credits (typically 10 years of work) to qualify for Social Security retirement benefits.

    2. Maximize Your Earnings

    Your Social Security benefit is based on your 35 highest-earning years. Higher earnings mean higher benefits.

    3. Delay Retirement

    You can claim Social Security as early as 62, but waiting until 70 increases your monthly benefit significantly.

    4. Check Your Earnings Record

    Review your Social Security statement annually at ssa.gov to ensure your earnings are recorded correctly.

    The Future of FICA

    Social Security faces funding challenges:

  • The trust fund may be depleted by 2034
  • Potential solutions include raising the wage base limit, increasing tax rates, or reducing benefits
  • Stay informed about proposed changes

    • Conclusion

    FICA taxes are a significant part of your paycheck, but they fund crucial benefits you'll rely on in retirement or if you become disabled. Understanding how these taxes work helps you plan for your financial future and maximize your benefits.

    Use our paycheck calculator to see exactly how much you're paying in FICA taxes and what your take-home pay will be.

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