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The taxes taken out of your paycheck for Social Security and Medicare are collectively referred to as FICA taxes. Here’s a breakdown of how they work.
What is FICA tax?
FICA, short for Federal Insurance Contributions Act, is a federal law that requires employers to withhold and remit a certain percent of an employee’s earnings to help fund Social Security and Medicare. The total bill is split between the employer and employee, with each party paying half.
How FICA taxes work
FICA taxes are a combination of Social Security and Medicare taxes that equal 15.3% of your earnings. You are responsible for half of the total bill (7.65%), which includes a 6.2% Social Security tax and 1.45% Medicare tax on your earnings.
Since FICA taxes are a type of payroll tax that your employer must withhold from your wages, you'll see these deductions on your paycheck. The Social Security portion of FICA is sometimes labeled as “OSADI,” which is short for “old-age, survivors, and disability insurance” tax. The hospital insurance part is often noted as a Medicare tax.
2023 FICA tax rates and limits
In 2023, only the first $160,200 of your earnings are subject to the Social Security tax, up from $147,000 in 2022.
There is an additional 0.9% surtax on top of the standard 1.45% Medicare tax for those who earn over $200,000 (single filers) or $250,000 (joint filers).
Your employer is also responsible for paying half of the total FICA obligation.
Social Security tax (aka OASDI)
(only the first $160,200 in 2023).
(only the first $160,200 in 2023).
Additional Medicare tax
(on earnings over $200,000 for single filers; $250,000 for joint filers).
Nerdy Tip: If you’re self-employed, you’re typically responsible for the full FICA tax since you don’t have an employer to match your payment. Learn more about how self-employment taxes work.
What is withholding tax?
A withholding tax is an income tax that a payer (typically an employer) remits on a payee's behalf (typically an employee). The payer deducts, or withholds, the tax from the payee's income. FICA tax is a type of withholding tax.
Other payroll tax items you may hear about
FUTA tax: This stands for Federal Unemployment Tax Act. The tax funds a federal program that provides unemployment benefits to people who lose their jobs. Employees do not pay this tax or have it withheld from their pay. Employers pay it.
SUTA tax: The same general idea as FUTA, but the money funds a state program. Employers pay the tax.
Self-employment tax: If you work for yourself, you may also have to pay self-employment taxes, which are essentially the full load of Social Security and Medicare taxes. That’s because the IRS imposes a 12.4% Social Security tax and a 2.9% Medicare tax on net earnings. Typically, employees and their employers split that bill, which is why employees have 6.2% and 1.45%, respectively, held from their paychecks. Self-employed people, however, pay the whole thing. Because you may not be receiving a traditional paycheck, you may need to file estimated quarterly taxes in lieu of withholdings.
Why do I have to pay FICA tax?
Employers have to withhold taxes — including FICA taxes — from employee paychecks because taxes are a pay-as-you-go arrangement in the United States. When you earn money, the IRS wants its cut as soon as possible.
Some people are “exempt workers,” which means they elect not to have federal income tax withheld from their paychecks. Social Security and Medicare taxes will still come out of their checks, though.
Typically, you become exempt from withholding only if two things are true:
You got a refund of all your federal income tax withheld last year because you had no tax liability.
You expect the same thing to happen this year.
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