How FICA Taxes Work: Social Security & Medicare Explained

FICA — the Federal Insurance Contributions Act — is the line on your pay stub that funds Social Security and Medicare. It is separate from federal income tax and it has its own rules, its own wage base, and its own quirks for the self-employed. Most W-2 employees pay 7.65% of their gross wages to FICA every payday and never look at it twice. That's a mistake, because FICA is the largest tax most middle-income Americans pay.

The two halves of FICA

• Social Security tax: 6.2% of wages, paid by the employee, matched by the employer.
• Medicare tax: 1.45% of wages, paid by the employee, matched by the employer.
• Combined employee rate: 7.65%. Combined employer rate: 7.65%. Total flowing into the trust funds: 15.3% of every payroll dollar.

The Social Security wage base

Social Security tax only applies to wages up to the annual wage base. For 2025 that base is $176,100. Wages above that line are still subject to Medicare, but the 6.2% Social Security portion stops. A salaried employee earning $200,000 pays the full 6.2% on the first $176,100 and 0% on the next $31,400 — saving roughly $1,947 compared to a flat-rate system. This is why high earners see their take-home pay quietly increase in the last few months of the year.

The Additional Medicare Tax

Medicare has no wage base, but high earners pay extra. Wages above $200,000 (single) or $250,000 (MFJ) are subject to an additional 0.9% Medicare tax. Employers withhold it on any single employee's wages above $200,000 regardless of filing status, which can create either a small refund or a small balance due at tax time.

What the self-employed pay

If you are a sole proprietor, an independent contractor, or a single-member LLC, you owe both halves of FICA — the employee 7.65% and the employer 7.65% — as self-employment tax, for a combined 15.3% on net self-employment earnings up to the wage base. The IRS lets you deduct half of that on Schedule 1 to mirror the income-tax treatment employees get, but the cash cost is real and is the single biggest surprise for first-year freelancers.

Why FICA matters even though it isn't refundable

Unlike federal income tax, FICA does not produce a refund and is not affected by the standard deduction, the Child Tax Credit, or the Earned Income Credit. It is a flat tax on gross wages. For a household earning $60,000 with two children, FICA is often a larger annual liability than federal income tax. Knowing your true tax burden — federal + state + FICA — is essential for choosing between W-2 and 1099 work, negotiating a raise, or deciding how much to contribute to a 401(k).

Sources: Social Security Administration 2026 fact sheet, IRS Publication 15 (Circular E), and IRS Schedule SE instructions for tax year 2025.