FICA (Federal Insurance Contributions Act) is the law that requires payroll taxes to fund Social Security and Medicare programs in the United States. These taxes are deducted from every paycheck.
For most workers, 7.65% of their gross wages go to FICA taxes: 6.2% for Social Security and 1.45% for Medicare. Employers match these percentages, bringing the total contribution to 15.3%. FICA ensures ongoing funding for retirement benefits and healthcare coverage for elderly and disabled Americans.
Let’s understand what FICA is and how much is FICA tax for 2024.
What is FICA?
If you’ve ever wondered what FICA is or what FICA stands for, you’re not alone.
FICA stands for the Federal Insurance Contributions Act, a tax that funds Social Security and Medicare programs in the United States.
Enacted in 1935 as part of President Franklin D. Roosevelt’s New Deal, FICA initially aimed to provide a safety net for elderly and disabled Americans. The FICA definition was expanded in 1965 to include Medicare coverage, broadening its impact on American workers and retirees.
In 2024, the FICA tax you see on your pay stub is actually a combination of two separate taxes:
- Social Security tax (6.2% of your gross wages)
- Medicare tax (1.45% of your gross wages)
Note: The FICA rate is set by law and can change over time.
FICA Tax Rates and Limits
It is important to understand the FICA meaning and how it applies to your paycheck for managing your finances effectively.
While the FICA tax rate typically remains stable year-over-year for most workers, the wage base limit for Social Security tax is adjusted annually to reflect average wage increases. This limit, also known as the FICA limit, directly affects the maximum amount of earnings subject to Social Security tax.
Here’s a comparison of the FICA rates and limits for 2023 and 2024:
| Year | Social Security Tax Rate | Medicare Tax Rate | FICA Percentage | Social Security Wage Base Limit |
| 2023 | 6.2% | 1.45% | 7.65% | $160,200 |
| 2024 | 6.2% | 1.45% | 7.65% | $168,600 |
The FICA rate in 2024 remains consistent with the FICA rate in 2023 at 7.65%. However, the FICA limit 2024 has increased by $8,400, reflecting the adjustment for wage growth. This change affects the maximum amount of Social Security tax an individual might pay in a given year.
Note: While there is a FICA tax limit (also known as the FICA max) for Social Security contributions, Medicare tax has no upper limit.
Components of FICA
FICA (Federal Insurance Contributions Act) is composed of two main components: Social Security tax and medicare tax, each serving a distinct purpose in funding social programs. What is Social Security tax, and how does it differ from Medicare tax? Let’s break it down.
1. Social Security Tax
This is the larger portion of FICA. Employees pay 6.2% of their gross wages towards Social Security, up to a specific limit. For 2024, this FICA limit is set at $168,600. This means that wages earned beyond this threshold are not subject to Social Security tax.
The funds collected through this tax support three key programs:
- Retirement benefits for eligible workers
- Disability insurance for workers who become disabled
- Survivor benefits for families of deceased workers
2. Medicare Tax
The Medicare portion of FICA is smaller but applies to all earned income without a cap. The Medicare tax rate in 2023 and the Medicare tax rate in 2024 remain consistent at 1.45% of gross wages. Unlike Social Security tax, there is no upper limit on the wages subject to Medicare tax.
These funds primarily support:
- Hospital insurance (Part A) for eligible individuals
- Medical insurance (Part B) for those who choose to enroll
3. Additional Medicare Tax
An additional Medicare tax of 0.9% applies to high-income earners. The thresholds for this tax vary based on filing status:
| Filing Status | Threshold Amount |
| Married filing jointly | $250,000 |
| Married filing separately | $125,000 |
| Single | $200,000 |
| Head of household (with qualifying person) | $200,000 |
| Qualifying surviving spouse with dependent child | $200,000 |
How does FICA Work?
What is FICA on my paycheck?’ is a common question among employees who notice this deduction on their pay stubs. To better understand why FICA is withheld and how it works, let’s explore the basics of this payroll tax.
As a taxpayer, a portion of every paycheck you earn goes towards FICA taxes. FICA stands for the Federal Insurance Contributions Act. It is the tax that funds Social Security and Medicare, two important social insurance programs that most Americans will rely on in old age or if they become disabled.
For Social Security, you pay 6.2% of your earnings each paycheck, and your employer pays a matching 6.2%, for a total of 12.4%. This money is put into the Social Security trust funds, which are later used to pay retirement, disability, and survivor benefits to those who are eligible.
The Medicare tax is 1.45% of earnings paid by both the employee and employer, for a total of 2.9%. This tax is put into the trust fund that pays for some of the seniors’ hospital and medical care costs.
As you work and pay FICA taxes, you earn “credits” towards Social Security eligibility. In 2024, you earn one credit for each $1,730 in earnings, up to a maximum of four credits per year. Once you earn 40 credits over your working life, which takes 10 years of work for most people, you become eligible for retirement benefits. The amount of your ultimate benefit will depend on your 35 highest years of earnings.
Note: By faithfully paying FICA taxes during your working years, you earn the right to collect benefits for retirement, disability, and other situations as outlined by Social Security and Medicare rules.
What are FICA EE and FICA ER?
It is important to understand the FICA EE meaning and how it differs from FICA ER to better manage your take-home pay. Let’s explore the differences between these two FICA contributions.
1. FICA-EE (Employee)
This is the portion of FICA taxes that employees pay directly from their wages. It includes both Social Security and Medicare contributions. The employee’s paycheck is reduced by these amounts, effectively lowering their take-home pay. However, these contributions ensure the employee’s eligibility for future Social Security benefits and Medicare coverage.
2. FICA-ER (Employer)
This is the portion of FICA taxes that employers are required to pay on behalf of their employees. Like FICA-EE, it includes both Social Security and Medicare contributions. While this doesn’t directly affect the employee’s paycheck, it does impact the overall cost of employment for the employer. These contributions are an additional expense for businesses on top of the wages they pay.
To illustrate how this works, let’s consider an example:
| Imagine an employee who earns an annual salary of $60,000.
For FICA-EE: Employee’s Social Security contribution: $60,000 x 6.2% = $3,720 Employee’s Medicare contribution: $60,000 x 1.45% = $870 Total FICA-EE: $3,720 + $870 = $4,590 This $4,590 is deducted from the employee’s annual pay, reducing their take-home amount. For FICA-ER: Employer’s Social Security contribution: $60,000 x 6.2% = $3,720 Employer’s Medicare contribution: $60,000 x 1.45% = $870 Total FICA-ER: $3,720 + $870 = $4,590 The employer must pay this additional $4,590 on top of the $60,000 salary, increasing their total cost for employing this person to $64,590. |
Here’s how to calculate your social security tax in 2024.
- For gross earnings less than $168,600:
- Social Security Tax = Gross earnings × 0.062
- For gross earnings greater than or equal to $168,600:
- Social Security Tax = $168,600 × 0.062 = $10,453.20
How to Calculate FICA?
As discussed above, the FICA tax includes Social Security tax and Medicare tax. Now, let’s explore how to calculate FICA withholding for the 2024 tax year.
1. Social Security Tax
- Rate: 6.2% of gross earnings
- FICA tax limit (Social Security wage base): $168,600 (for 2024)
Here’s how to calculate your social security tax in 2024.
- For gross earnings less than $168,600:
- Social Security Tax = Gross earnings × 0.062
- For gross earnings greater than or equal to $168,600:
- Social Security Tax = $168,600 × 0.062 = $10,453.20
In other words:
- You pay 6.2% on all earnings up to $168,600.
- The maximum Social Security tax for 2024 is $10,453.20.
- Earnings above $168,600 are not subject to additional Social Security tax.
2. Medicare Tax
- Basic Rate: 1.45% of all gross earnings
- Additional Medicare Tax: 0.9% on earnings above $200,000 (single) or $250,000 (married filing jointly)
Here’s how to calculate your medicare tax.
- Basic Medicare Tax: Gross earnings × 0.0145
- Additional Medicare Tax (if applicable): (Gross earnings – Threshold) × 0.009
3. Total FICA Tax
Examples with Detailed Calculations
Let’s understand how to calculate FICA taxes with these examples.
| Example 1: Annual salary of $100,000
If you make $100,000, your FICA tax is calculated as follows:
|
| Example 2: Annual salary of $220,000
If you make $220,000, your FICA tax will be calculated as follows.
|
Note: The amount of FICA on paycheck may vary if you have pre-tax deductions or benefits that affect your taxable wages.
FICA Exemption
Certain individuals may be exempt from paying FICA tax:
- International persons on specific visas: This exemption applies to individuals with F-1, J-1, M-1, Q-1, or Q-2 visas who are classified as nonresident aliens for tax purposes under US tax regulations.
- Long-term university employees: Employees who have been continuously employed by the University since March 31, 1986, are exempt from FICA Medicare tax only.
- Full-time student employees: Students classified as Employee Class (ECLS) GN or SN are exempt from FICA Medicare tax.
FICA exemptions are subject to specific conditions and may change based on individual circumstances or changes in tax laws.
Wrapping Up
FICA tax funds Social Security and Medicare programs, providing retirement, disability, and healthcare benefits. Most workers pay FICA through payroll withholding, with a wage base limit for Social Security tax and an additional Medicare tax for high earners. These contributions ensure financial support and medical coverage in your retirement years.
However, specific exemptions exist for international students, long-term university employees, and some student workers. Ensure to consult a tax professional or your employer’s HR department.
FAQs
1. Are FICA taxes mandatory?
Yes, FICA taxes are mandatory for most employees and employers in the United States. They are required by law to fund Social Security and Medicare programs. However, there are some specific exemptions for certain groups, such as some international students and specific types of employees.
2. Is FICA the same as federal income tax?
No, FICA is not the same as federal income tax. FICA specifically funds Social Security and Medicare programs, while federal income tax funds various government operations and programs. They are calculated differently and appear as separate deductions on your paycheck.
3. How are FICA rates determined?
FICA rates are set by federal law. The current rates are 6.2% for Social Security (on earnings up to the wage base limit) and 1.45% for Medicare (on all earnings), paid by both employee and employer. These rates can only be changed through legislation passed by Congress.
4. Do I Have to Pay FICA?
Most employees in the United States are required to pay FICA taxes. However, there are some exceptions, such as international students, some state and local government employees with their own retirement systems, and specific religious groups that oppose receiving Social Security benefits.
5. What happens if I overpay FICA taxes?
If you overpay FICA taxes, typically due to working multiple jobs and exceeding the Social Security wage base limit, you can claim a refund on your federal income tax return. The excess Social Security tax withheld will be credited against your income tax liability.
6. Can I opt out of FICA contributions?
Generally, you cannot opt out of FICA contributions if you’re a W-2 employee. The few exceptions include certain religious groups, some nonresident aliens, and specific government employees. Self-employed individuals must pay self-employment tax, which is similar to FICA.
