What Is the FICA Tax?

If you’re an employee on a U.S. payroll, one of the taxes you’ll see subtracted from your gross pay will be the Federal Insurance Contributions Act tax (FICA), which is a combination of Social Security and Medicare taxes. 

Learn what FICA is, why you have to pay it, and the differences between FICA and income taxes. 

How the FICA Tax Works

The FICA tax, also commonly called payroll or withholding tax, is money collected from you and your employer to pay for services such as old age, survivors, and disability insurance (OASDI). It also covers Medicare. 

• Alternate name: Withholding or payroll tax
• Acronym: FICA

A Brief History of FICA Tax

Driven by the suffering of the Great Depression, the FICA tax was originally created to fund an “old age” Social Security system. Signed into law by Franklin Roosevelt in 1935, its intent was to create a self-funding program rather than one reliant on federal revenue. When Medicare was created in 1965, this was also added to the tax. 

What FICA Tax Means for You

As an employee, your total amount of FICA tax due for 2023 is 6.2% of your gross wages for Social Security and 1.45% of your gross wages for Medicare, for a total of 7.65%. 

While Social Security taxes have a cap based on your earnings—$160,200 for 2023—Medicare tax is actually increased by 0.9% if you earn more than a certain amount in a calendar year. For single filers, that threshold is $200,000; for those who are married and filing jointly, the threshold is $250,000.

Your employer will automatically withhold these taxes for you. It will also match your contributions to the FICA tax, which results in a total of 15.3% in FICA tax paid per employee each year. 

While independent contractors are not subject to FICA tax, they are on the hook for self-employment tax, which is similar to the FICA tax in that it covers Social Security and Medicare taxes. The total tax due from independent contractors is a full 15.3% each year.

Do You Have To Pay FICA Tax?

As an employee in the United States, you are most likely subject to the FICA tax. While there are a few exemptions, such as certain religious figures or groups, and for some students employed by the school they attend, most workers must pay into the system.

FICA Tax vs. Income Tax

Understanding the different types of tax can be confusing, especially because the United States has so many different kinds. So, what’s the difference between FICA and income tax, and how does it affect you?

To put it simply, almost everybody pays the FICA tax. Whether you owe income tax, meanwhile, varies depending on your income.

Pros and Cons of FICA Taxes

Pros Explained:

• Funds services you’ll likely need someday: Nearly everyone will need to rely on Social Security services someday—whether you’re suffering from a disability or simply elderly. You’re paying to fund benefits you’ll likely later use.
• Worry-free tax that’s collected automatically from your paycheck: Unlike federal or state taxes, the FICA tax is automatically withheld from your pay, so you don’t ever need to worry about it.

Cons Explained

• Mandatory tax: With very rare exceptions, this tax is mandatory for U.S. employees, whether you use its services or not.
• No cap on taxed earnings: While the Social Security portion of the FICA tax caps out each year, the Medicare portion doesn’t. You’re also assessed an additional 0.9% Medicare tax for wages over $200,000 as a single tax filer (and wages over $250,000 for married taxpayers filing jointly).

Frequently Asked Questions (FAQs)