FICA is the payroll tax that funds Social Security and Medicare

FICA stands for the Federal Insurance Contributions Act. It is the law that requires your employer to take money from your paycheck and send it to the federal government. That money funds two programs: Social Security and Medicare. When you see "FICA" listed on your pay stub, it is broken into two separate line items — one for Social Security tax and one for Medicare tax.

The Social Security portion of FICA is 6.2% of your wages (up to a yearly cap that changes each year). Your employer also pays 6.2% on your behalf, for a total of 12.4% going into the Social Security Trust Fund. If you are self-employed, you pay both the employee and employer portions yourself, which is 12.4% total. The Medicare portion is 2.9% split the same way, plus an additional 0.9% Medicare tax on higher earners.

FICA taxes are separate from income tax. Your employer withholds income tax based on your W-4 form, but FICA comes out automatically at the same rate for everyone, regardless of how much you earn or what your tax bracket is.

Key Takeaways

  • FICA is a mandatory payroll tax that funds Social Security and Medicare, not a voluntary savings account or investment.
  • You pay 6.2% of your wages into Social Security through FICA, and your employer pays an equal 6.2% on your behalf.
  • FICA taxes are withheld from every paycheck and sent directly to the federal government, not held in an individual account with your name on it.
  • Your FICA contributions create a record of earnings that determines how much Social Security income you receive when you retire or become disabled.
  • Self-employed people pay the full 12.4% Social Security tax themselves because they are both employee and employer.

How FICA contributions build your Social Security record

Every time FICA tax is withheld from your paycheck, the Social Security Administration records that you earned income and paid into the system. This record is called your earnings record. Social Security uses your earnings record to calculate how much monthly income you will receive when you retire, become disabled, or when your family members become may have access to to survivor benefits after your death.

You need 40 credits to be covered by Social Security. You earn one credit for each $1,640 of wages you earn in a year (this dollar amount changes yearly). Most people earn four credits per year if they work full-time, which means you can earn your 40 credits in 10 years of work. However, you do not need to earn them consecutively — gaps in your work history are allowed.

Your Social Security benefit amount is based on your highest 35 years of earnings. If you worked fewer than 35 years, zeros are counted for the missing years, which lowers your average. This is why people who take time out of the workforce for caregiving or other reasons may receive a lower benefit amount than someone who worked continuously.

Why FICA is not the same as a personal savings account

A common misunderstanding is that FICA taxes go into an account with your name on it, like a savings account or 401(k). They do not. FICA taxes go into the Social Security Trust Fund, which is a shared pool. The money collected today is used to pay benefits to current retirees, disabled workers, and survivors. This is called a pay-as-you-go system.

Because it is a shared pool, your individual FICA contributions do not sit waiting for you to retire. Instead, you build an entitlement to future benefits based on how much you paid in and for how long. When you retire, the Social Security Administration calculates your benefit based on your earnings record and your age, then pays you from the current pool of FICA taxes being collected from today's workers.

This also means that if you die before reaching retirement age, the money you paid into FICA does not go to your heirs. However, your family members may be may have access to to survivor benefits if you have dependent children or a surviving spouse caring for those children.

FICA wage caps and how they affect your benefit

There is a yearly limit on how much of your income is subject to the Social Security portion of FICA. In 2024, that cap is $168,600 (this amount changes each year). If you earn $200,000 per year, you only pay Social Security tax on the first $168,600. Any income above that is not subject to Social Security tax and does not count toward your earnings record.

This wage cap affects high earners in two ways. First, they pay less total FICA tax than someone earning below the cap would pay on a percentage basis. Second, their Social Security benefit is also capped — there is a maximum monthly benefit amount that Social Security will pay, regardless of how much you earned. The wage cap and the benefit cap are linked to keep the system in balance.

If you are self-employed and earn above the wage cap, you still pay the full 12.4% on income up to the cap, but nothing on income above it. This is the same treatment as an employee.

What happens if you do not pay FICA taxes

If you work "off the books" or in cash without reporting income, you are not paying FICA taxes. This means no earnings are recorded in your Social Security record for that work. When you retire, that missing income will not be counted, and your benefit will be lower than it would have been if you had reported the income and paid FICA.

Additionally, work without FICA contributions does not count toward the 40 credits you need to be covered by Social Security. If you do not have 40 credits by retirement age, you will not receive a Social Security benefit at all, though you may be may have access to to benefits as a spouse or survivor if a family member has enough credits.

Some jobs are exempt from FICA taxes — for example, certain government employees with their own pension systems, some religious workers, and students working at their school. If your job is exempt, you should understand how that affects your future Social Security coverage.

FICA and Medicare: the other half of the payroll tax

The Medicare portion of FICA is 2.9% of your wages, with no yearly cap. This means high earners pay Medicare tax on all their income, unlike Social Security tax. Additionally, if you earn more than $200,000 as a single filer (or $250,000 if married filing jointly), you pay an extra 0.9% Medicare tax on the income above that threshold.

Medicare tax funds the Medicare program, which provides health insurance to people age 65 and older and to some younger people with disabilities or end-stage renal disease. Unlike Social Security, Medicare is not based on a calculation of your lifetime earnings — it is available to anyone who is age 65 and a U.S. citizen or permanent resident, regardless of how much they paid in FICA.

However, if you did not pay Medicare tax for at least 40 quarters (10 years), you may have to pay a higher premium for Part B (medical insurance) when you enroll in Medicare.

Checking your FICA record and correcting errors

You can view your earnings record by creating an account at ssa.gov and using the "my Social Security" portal. Your earnings record shows how much you earned each year and how much FICA tax was withheld. You should review it every few years to make sure it is accurate.

If you see an error — for example, income that was not reported to Social Security, or income credited to the wrong year — you can file a correction request. You will need to provide documentation such as old pay stubs or tax returns. Social Security has a important date for corrections, which is generally three years, three months, and 15 days after the year in which the income was earned, though there are some exceptions.

Correcting errors in your earnings record is important because even small mistakes can lower your Social Security benefit. If you worked under a different name or Social Security number at any point, make sure all your earnings are consolidated under your current number.

Frequently Asked Questions

Can I opt out of paying FICA taxes?

No. FICA is mandatory for all employees and self-employed people, with limited exceptions for certain government workers and religious groups. If you are employed, your employer must withhold FICA taxes from your paycheck. If you are self-employed, you must pay FICA when you file your taxes.

If I pay FICA my whole life, am I may provide to get Social Security?

You must have 40 credits to be covered by Social Security. Most full-time workers earn four credits per year, so 10 years of work is usually enough. However, if you do not reach 40 credits by retirement age, you will not receive a benefit based on your own earnings, though you may be may have access to to spousal or survivor benefits.

What if I worked in another country — does that FICA count?

FICA paid to the U.S. Social Security system counts toward your 40 credits and your earnings record. Work in other countries generally does not count unless there is a totalization agreement between the U.S. and that country. You can contact Social Security to ask about work you did abroad.

Does FICA tax come out before or after income tax?

Both come out of your paycheck, but they are separate. FICA is withheld at a flat rate (6.2% for Social Security, 2.9% for Medicare) regardless of your income level. Income tax is withheld based on your W-4 form and your tax bracket. FICA is calculated on your gross pay, and then income tax is calculated on what remains.

If I die before retirement, do my heirs get the FICA I paid?

No. FICA taxes do not transfer to heirs as an inheritance. However, your family members may be may have access to to survivor benefits if you have dependent children, a surviving spouse caring for those children, or a surviving spouse age 60 or older. These benefits come from the Social Security Trust Fund, not from your individual FICA contributions.