FICA Explained: Social Security and Medicare Taxes

The two parts of FICA

FICA stands for the Federal Insurance Contributions Act. It's two separate taxes that fund two separate programs:

• Social Security (OASDI): 6.2% of wages, up to a wage cap of $168,600 in 2024. This funds retirement benefits, disability insurance, and survivor benefits. If you earn above the cap, you stop paying Social Security tax for the rest of the year.
• Medicare: 1.45% of all wages, no cap. This funds the federal health insurance program for seniors and certain disabled individuals. There's an additional 0.9% Medicare surtax on wages above $200,000 for single filers (or $250,000 married filing jointly).
• Combined employee FICA: 7.65% (6.2% + 1.45%) on wages up to $168,600, then 1.45% (Medicare only) on wages above the cap, plus 0.9% on wages above $200,000.

The Social Security wage cap

The Social Security wage cap is $168,600 for 2024. If you earn more than this, you stop paying the 6.2% Social Security tax on wages above $168,600. This means high earners pay a lower effective FICA rate.

On a $85,000 salary: FICA = $85,000 × 7.65% = $6,502.50 (all wages under the cap).

On a $200,000 salary: Social Security = $168,600 × 6.2% = $10,453.20. Medicare = $200,000 × 1.45% = $2,900. Total FICA: $13,353.20. Effective rate: 6.68% — lower than the 7.65% someone earning $85,000 pays.

On a $500,000 salary: Social Security = $10,453.20 (capped). Medicare = $500,000 × 1.45% + ($500,000 − $200,000) × 0.9% = $7,250 + $2,700 = $9,950. Total FICA: $20,403.20. Effective rate: 4.08%.

The wage cap is the reason FICA is regressive — lower earners pay a higher percentage of their income. The cap is adjusted annually for inflation.

Self-employment tax: the double hit

If you're self-employed (contractor, freelancer, business owner), you pay both the employee and employer halves of FICA. This is the self-employment tax — 15.3% total: 12.4% Social Security (up to $168,600) + 2.9% Medicare (no cap).

On $85,000 in self-employment net income: SE tax = $85,000 × 15.3% = $13,005. Compare to the W-2 employee's $6,502.50 — the self-employed person pays double.

However, the IRS lets you deduct half of the self-employment tax (the employer's share) from your adjusted gross income. So on $85,000 SE income: you pay $13,005 in SE tax, but deduct $6,502.50 from your taxable income. At the 22% bracket, that deduction saves about $1,430 in federal income tax. Net SE cost: $13,005 − $1,430 = $11,575 — still about $5,000 more than the W-2 employee.

The self-employed tax calculator handles this math automatically, including the deduction.

FICA and your benefits

The Social Security tax you pay funds the benefits you'll eventually receive. Your Social Security retirement benefit is based on your 35 highest-earning years, indexed for inflation. The more you earn (up to the wage cap), the higher your eventual benefit — but the formula is progressive, so lower earners get a higher replacement rate.

In 2024, the maximum Social Security retirement benefit at full retirement age is $3,822/month for someone who earned at or above the wage cap for 35 years. The average benefit is about $1,900/month. Medicare is available at age 65 regardless of how much you paid in — it's a universal program for seniors.

FICA is not a retirement account — you can't opt out or redirect the money. It's a tax that funds current beneficiaries (current retirees' benefits are paid by current workers' FICA). Whether you'll receive benefits depends on the program's solvency, which is projected through the 2030s under current law.

FICA vs. income tax — the key difference

FICA is a flat payroll tax with no deductions, no standard deduction, and no bracket structure. It applies from the first dollar of wages. Income tax is progressive, has the standard deduction ($14,600 single in 2024), and starts at 10%.

For a single filer earning $77,719 (the national median household income, Census ACS 2023): FICA = $5,946, federal income tax = $10,501, total federal burden = $16,447 (21.2% of gross). FICA is about 36% of the total federal tax — a significant portion that's often overlooked because it's withheld before you see your paycheck.

Unlike income tax, FICA has no refund at tax time. If you overpay income tax (too much withheld), you get a refund. FICA is exact — 7.65% of your wages, period. The take-home calculator includes both.