What is FICA Tax?
FICA, which stands for Federal Insurance Contributions Act, is a mandatory payroll tax that funds Social Security and Medicare programs. These programs provide benefits for retirees, disabled individuals, and children of deceased workers. Every employee and employer is required to pay FICA taxes. For a broader overview of all payroll taxes, see our Understanding Payroll Taxes guide.
The Two Components of FICA
FICA consists of two separate taxes:
1. Social Security Tax
The Social Security portion of FICA is also known as the Old-Age, Survivors, and Disability Insurance (OASDI) tax. For 2025, the Social Security tax rate remains at 6.2% for both employees and employers, meaning:
- Employees pay 6.2% of their gross wages up to the wage base limit
- Employers match this with another 6.2% contribution
- Self-employed individuals pay both portions, totaling 12.4%
Wage Base Limit: The Social Security tax only applies to earnings up to a certain threshold, known as the wage base limit. For 2025, this limit is $168,600 (up from $160,200 in 2023). Earnings above this amount are not subject to the Social Security portion of FICA. This wage base limit is adjusted annually based on changes in the national average wage index. This affects calculations in our Texas and Florida paycheck calculators.
2. Medicare Tax
The Medicare portion of FICA funds the Medicare health insurance program. The standard Medicare tax rate is 1.45% for both employees and employers:
- Employees pay 1.45% of their gross wages (with no wage base limit)
- Employers match this with another 1.45% contribution
- Self-employed individuals pay both portions, totaling 2.9%
Additional Medicare Tax: Higher-income earners pay an Additional Medicare Tax of 0.9% on earnings above certain thresholds:
- $200,000 for single filers
- $250,000 for married couples filing jointly
- $125,000 for married couples filing separately
This additional tax is only paid by the employee, not matched by the employer.
How FICA Taxes Appear on Your Paycheck
On your pay stub, FICA taxes are typically broken down into two line items:
- OASDI or Social Security: 6.2% of your gross wages up to the annual wage base limit
- Medicare: 1.45% of your gross wages (plus the Additional Medicare Tax if applicable)
These deductions are taken from your gross pay before you receive your paycheck, along with federal income tax withholding, state and local taxes (if applicable), and any voluntary deductions like retirement contributions or health insurance premiums.
What FICA Taxes Fund
Social Security Benefits
The Social Security portion of FICA funds several types of benefits:
- Retirement benefits: Monthly payments to eligible retired workers
- Disability benefits: Payments to workers who become disabled before reaching retirement age
- Survivor benefits: Payments to the families of workers who die
- Supplemental Security Income (SSI): Payments to low-income individuals who are aged, blind, or disabled
Medicare Benefits
The Medicare portion of FICA funds health insurance for:
- People age 65 and older
- Certain younger people with disabilities
- People with End-Stage Renal Disease (permanent kidney failure requiring dialysis or transplant)
Medicare coverage is divided into different parts:
- Part A: Hospital insurance
- Part B: Medical insurance
- Part C: Medicare Advantage plans (private insurance alternatives)
- Part D: Prescription drug coverage
FICA for Self-Employed Individuals
If you're self-employed, you pay both the employee and employer portions of FICA taxes...
- 12.4% for Social Security (on earnings up to the wage base limit)
- 2.9% for Medicare (on all earnings)
- Plus the 0.9% Additional Medicare Tax on high earnings
However, self-employed individuals can deduct the employer portion of these taxes when calculating their adjusted gross income for income tax purposes.
Conclusion
FICA taxes are a significant part of your payroll deductions, but they fund crucial social insurance programs that provide a safety net for millions of Americans. Understanding how these taxes work can help you better plan your finances and prepare for your future. For more information on other paycheck deductions, see our Common Paycheck Deductions Explained article.
To see exactly how FICA taxes affect your take-home pay, use our PayrollCheck Calculator, which provides a detailed breakdown of all payroll deductions, including FICA, federal income tax, and state taxes. You can also learn about Tax Withholding Strategies to optimize your paycheck.