What are FICA Taxes?

FICA (Social Security and Medicare) Taxes: What Every Taxpayer Needs to Know

Pay stubs detail many different types of taxes, and many taxpayers may wonder what are all these taxes that I am paying? The Federal Insurance Contributions Act (FICA) taxes are some of the largest of these payroll taxes, and fund Social Security and Medicare programs in the United States.

What are FICA taxes?

FICA taxes are deducted from employees’ paychecks to fund Social Security and Medicare programs, at a total base rate of 7.65%. The employer also pays matching FICA taxes on the employee’s behalf, at 7.65%, for a total of 15.3%.

These taxes also apply to self-employed individuals, who must pay both the employee’s and employer’s share of FICA! But they get a bit of a break on this, as discussed below.

  • Social Security Tax: Often labeled as OASDI (Old-Age, Survivors, and Disability Insurance). As of 2024, the Social Security tax rate stands at 6.2% for both employees and employers. However, there is a cap on the wage that’s subject to this tax, known as maximum taxable earnings, or the wage base limit. The 2024 wage base limit is $168,600, and this amount generally increases each year. So if you were to make $200,000, for example, you would only be subject to social security tax on the first $168,600, with zero social security tax on the remaining $31,400.
  • Medicare Tax: The Medicare tax is used to fund the Medicare Hospital Insurance (HI) program, which provides healthcare coverage to individuals aged 65 and older. In 2024, the Medicare tax rate is 1.45% for employees and employers, with no wage base limit. Additionally, high-income earners (those with incomes exceeding $200,000 for individuals and $250,000 for married couples filing jointly) are subject to an additional 0.9% Medicare tax.

Do self-employed people pay FICA taxes?

Yes. Self-employed individuals are responsible for paying both the employee and employer portions of FICA taxes, amounting to a combined rate of 15.3%. However, they can deduct half of this self-employment tax when calculating their adjusted gross income for income tax purposes.

What do FICA taxes pay for?

FICA taxes help fund Social Security and Medicare programs, which are part of the U.S. social safety net.

Social Security benefits provide financial support to retirees, disabled individuals, and survivors of deceased workers. These benefits help ensure a basic standard of living for millions of Americans in retirement and during times of disability or loss of a family member. Medicare provides healthcare coverage to millions of elderly and disabled individuals, covering essential medical services such as hospital stays, doctor visits, and prescription drugs.

Related Reading

Guide to Laws for Taxpayers

What are Payroll Taxes?

Guide to Self-Employment Taxes

IRS page on FICA rates

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