What is FICA tax?

Two payroll taxes that almost all employees must pay

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FICA, the Federal Insurance Contributions Act, requires U.S. employers and employees to pay certain payroll taxes to help fund the Social Security and Medicare programs. Employers automatically remove the proper FICA tax from each employee’s paycheck in addition to other payroll taxes (such as federal and state income taxes). Certain people are exempt from paying FICA taxes, like college students with on-campus jobs and nonresident aliens, but most workers must pay the FICA tax. Contractors and self-employed workers don’t need to pay FICA taxes, but they still need to pay Social Security and Medicare taxes through self-employment tax.

Key Takeaways

  • FICA covers two separate taxes, one that helps fund Medicare Part A and one that helps fund Social Security

  • FICA tax is worth 15.3% of an employee’s wages, but an employee only pays half the FICA tax (7.65%) with their employer paying the other half

  • Social Security tax only applies to your first $142,800 of wages in 2021, but the Medicare tax applies to all your wages and increases for high earners

  • Workers without an employer don’t pay FICA tax, but they do pay an equivalent amount through self-employment tax

What is the purpose of FICA tax?

FICA tax covers two separate federal taxes that almost all employees need to pay from each paycheck:

  • The Hospital Insurance (HI) tax: Commonly known as the Medicare tax, the HI tax funds Medicare Part A and is 1.45% of an employee’s wages, with their employers contributing another 1.45%. For high earners, the FICA Medicare tax rises to 2.35% (employers still only contribute 1.45%).

  • The Old Age, Survivors and Disability Insurance (OASDI) tax: The FICA OASDI tax helps fund the Social Security program, so it’s commonly called the Social Security tax. This tax is 6.2% of employee wages, with employers contributing another 6.2%.

How much is FICA tax?

The total FICA tax is 15.3% per employee, with each employee paying half of their FICA taxes, 7.65%, and with their employers paying the remaining 7.65%. FICA tax is withheld from your gross income, so even if you make contributions that decrease your taxable income, you still pay FICA taxes. For example, if you contribute $10,000 to a 401(k), you won’t pay income tax on that $10,000 but you will still pay FICA tax on it.

FICA tax rates

Type of taxAmount employee paysAmount employer pays
Social Security tax6.20%6.20%
Medicare tax1.45%1.45%
Additional Medicare tax0.9% for certain high earners0%

To see how much you’ve paid in FICA tax, check the W-2 your employer sends you during tax season. Box 4 shows how much Social Security tax was withheld and box 6 shows how much Medicare tax was withheld. If you overpaid your FICA tax, you can get a FICA tax refund when you file your annual tax return.

Need help filing your taxes? Try our guide to income tax returns.

FICA tax income limits

Social Security tax only applies to your first $142,800 of income (known as the wage base limit). You don’t have to pay any Social Security taxes on income you earn above $142,800. [1] When your income from a single employer is above the limit, your employer should stop removing Social Security taxes on the applicable income. If you overpay Social Security taxes, you can get the overpayment refunded to you on your federal income tax return.

Medicare tax applies to all of your income. There is also an additional Medicare tax of 0.9%, sometimes called the Medicare surtax, that could bring your total Medicare tax up to 2.35%. The Medicare surtax applies to any income you have above $200,000 if your filing status is single or head of household. Joint filers pay the surtax on income above $250,000. Married individuals who choose to file separate tax returns must pay the additional Medicare tax on income above $125,000. (When should married couples file separately?)

FICA tax exemptions

Just about all workers need to pay FICA tax, but there are certain exemptions. College students with a campus job can be exempt from FICA taxes for up to 20 hours a week (up to 40 hours during summer vacation). [2] Employees of foreign governments may be exempt from FICA tax, but only for salaries paid by a foreign government. [3] Certain resident and nonresident aliens are also exempt from FICA, but H-1B visa holders do need to pay FICA tax. [4]

Related: 53 tax deduction and credits you can claim in 2021

Do self-employed people pay FICA tax?

Self-employed workers and independent contractors don’t need to pay FICA taxes, but they do need to pay an equivalent tax called SECA tax or self-employment tax. The self-employment tax rate is 15.3% of a worker’s pay, and workers must pay the entire tax themselves. Paying self-employment tax will likely require making estimated tax payments to the IRS each quarter in order to avoid a big tax bill at the end of the year. On the bright side, half of the self-employment tax is deductible since workers normally wouldn’t have to pay half of the Medicare and Social Security taxes.