What Are FICA Taxes? Tax Rates, Benefits, and How to Pay

FICA taxes are based on your earnings, and they fund Social Security and Medicare. If you are employed, your employer pays half of your FICA taxes, and you pay the other half. If you are self-employed or a small business owner, you pay all of your FICA taxes. 

FICA taxes aren't the same as income tax, and that can get confusing. To help you out, this post outlines the essentials.

Key takeaways 

• FICA taxes include Social Security and Medicare taxes.
• Social Security tax rate is 12.4%.
• Medicare tax rate is 2.9%
• Employees – you pay half and your employer pays half.
• Self-employed – you pay all of your FICA tax. 

What Are FICA Taxes?

FICA taxes are the taxes that fund the Social Security and Medicare programs. FICA stands for the Federal Insurance Contribution Act, which was passed in 1935 to fund the new Social Security program. The program was expanded in 1965 to include Medicare taxes as well. 

FICA taxes include:

• Social Security tax – provides benefits for retirees, disabled workers, and survivors of deceased workers.
• Medicare tax – funds health insurance for retirees age 65 or older and qualifying disabled workers under age 65

FICA Tax Rates in 2025

The FICA tax rates are:

• 12.4% Social Security Tax
• 2.9% Medicare Tax
• 0.9% Additional Medicare Tax

As of 2025, the Social Security tax rate is 12.4% – employees pay 6.2% and employers contribute a matching 6.2%. Self-employed individuals pay the full amount. This rate applies to wages up to $176,100. Earnings over that amount are not subject to Social Security tax.

The Social Security tax rate has been the same since 1990, with the exception of a temporary 2-point reduction in 2011 and 2012 for a "payroll tax holiday". The wage base adjusts annually based on a specific formula. 

The Medicare tax rate is 2.9% – employees pay 1.45% and employers contribute a matching 1.45%. Self-employed individuals pay the full 2.9%. Medicare tax applies to all wages.

The additional Medicare tax is 0.9%. It is paid by workers with no matching contribution required from employers. This tax applies if your wages are over the following based on your filing status:

• $250,000 for married filing jointly
• $125,000 for married filing separately
• $200,000 for all other taxpayers.

Employers must withhold the additional tax as soon as their employees' wages reach $200,000, regardless of their filing status. 

How FICA Taxes Impact Benefits

Generally, you must have 10 years of work history to qualify for Social Security and Medicare. 

To get retirement benefits, you must be age 62 years or older with at least 40 credits which equates to 10 years of work. Your monthly payment is based on your average earnings from your top 35 highest years of earnings. 

If you claim retirement benefits at age 62, your payment will only be about 70% of your full benefit amount. When you reach full retirement age (67 if born in 1960 or later), you get 100% of your benefit, but if you wait to claim benefits, the benefit increases slightly every month until age 70. 

If you don't have enough credits to claim Social Security on your own record, you may qualify to receive payments based on your ex-spouse or deceased spouse's record. There are also provisions that allow you to claim based on your former spouse's earnings record if it's higher than your earnings record. 

If you die before retirement, your surviving spouse and children may be entitled to Social Security Survivor's benefits. You must have up to 10 years of work history, but possibly less depending on your age at death. 

To get Social Security Disability Insurance, you must have at least 40 credits, and 20 of them must have been earned in the last 10 years before the disability. This is called the 20/40 requirement.

How FICA Taxes Work for W2 Employees

If you're employed, your employer will withhold your portion of Social Security and Medicare taxes from your paycheck. Your pay stub will show your earnings, and then, it will list all of the taxes withheld from your pay including Social Security, Medicare, federal income tax, state income tax if applicable, and any other state taxes. 

Your employer will also pay a matching amount of the Social Security and Medicare tax. Here's a brief example that doesn't include any state taxes for the sake of simplicity. 

Gross earnings – $1000
Social Security tax – $62
Medicare tax $14.50
Federal income tax – $100
Net pay – $823.50

Note that the income tax varies based on your income and the information you provided on your W4, but the Social Security and Medicare taxes are a consistent percentage as explained above. 

Your employer must deposit the taxes withheld from your paycheck with the federal government. These deposits are referred to as Trust Fund Taxes. Your employer must deposit a matching amount for the Social Security and Medicare tax. In this case, the employer will deposit $253 in total payroll taxes – which includes the taxes withheld from your check and the matching amount. Then, they will file a quarterly payroll report that details all the numbers. 

How FICA Taxes Work for the Self-Employed

This section applies to people who are self-employed including owners of sole proprietorships and unincorporated partnerships. 

If you're self-employed, there is no employer to pay the matching amounts, and thus, you must pay the entire Social Security and Medicare tax. The combined rate is 15.3%. These taxes are referred to as SECA taxes – which refers to the Self-Employment Contributions Act of 1954. 

SECA taxes are based on your net self-employment income, and you earn a business deduction worth half of your SECA taxes. Here's an example. 

Gross self-employment income $200,000
Deduction for business expenses $80,000
Net self-employment income $120,000
SECA tax $18,360
Deduction for 50% of SECA tax $9,180
Taxable income $92,460

The SECA tax is 15.3% of your net self-employment income, and you must pay that amount to the federal government. Then, you also face income tax on the $92,460. 

Due to the SECA tax, self-employment earnings are taxed at higher rates than income earned from an employer. This often creates unwanted surprises when people file their tax returns. For instance, say you earn a modest $5000 in self-employment income from a freelance job like driving for a rideshare company or working as a contractor. You'll owe $765 in SECA tax plus income tax based on your situation. 

How FICA Taxes Work for Corporations

The process works a bit differently if you structure your business as a corporation and you work for the corporation. Whether you have a C-corp or have elected to be taxed as an S-corp, you should pay yourself wages and generate a W2 for yourself at the end of the year. 

You will pay the employee's half of the Social Security and Medicare taxes out of your W2 wages. Then, the business will pay the employer's matching part of the Social Security and Medicare taxes. If you're the only owner, both of these taxes are coming out of your pocket at the end of the day, but they're accounted for in a way that shows you paying the employee portion and the business paying the employer portion. 

Totalization Agreements for FICA taxes

The United States has Totalization Agreements with many different countries, and if you work or run a business abroad, you should familiarize yourself with these rules. 

Totalization agreements help to prevent dual taxation of income for individuals who may be subject to Social Security taxes from two different countries on the same earnings. These agreements reduce tax burdens for both employees and employers. 

Frequently Asked Questions (FAQs)

Are all earnings subject to FICA taxes?

No, only earned income (wages, salaries, bonuses, tips, taxable benefits, etc) are subject to FICA taxes. Unearned income (interest, dividends, capital gains, etc.) is not subject to FICA.

Who's responsible for paying FICA taxes?

FICA taxes are paid by employees, with matching amounts contributed by their employers – as noted above, that's the same person for self-employed workers. When someone is employed, their employer withholds the FICA taxes from their pay and remits them to the IRS. To put it another way, the employee pays the FICA taxes, but their employer sends the funds to the IRS. If the employer fails to send the withheld FICA and income taxes, the IRS can assess a Trust Fund Recovery Penalty (worth 100% of the unpaid withheld taxes) – but here's the kicker, that penalty isn't assessed against the buisness; instead it's assessed against a responsible person (owner, employee, bookkeeper, etc) who failed to pay the tax.

Can I opt out of FICA taxes?

Generally, no. FICA taxes are mandatory for most workers. However, certain religious groups or nonresident aliens may be exempt under specific conditions. 

For example, self-employed Amish people are exempt from SECA taxes, and Amish people who are employed by other Amish people are also exempt from FICA taxes. In both cases, they must file a form to secure the exemption. Amish people who work for non-Amish employers will have FICA taxes withheld from their paychecks, but then, they can claim a refund of those taxes. 

How are FICA taxes different from federal income taxes?

FICA taxes are based on earned income, and these taxes specifically go into funds that support the Social Security and Medicare programs. In contrast, income tax applies to both earned and unearned income, and the money goes into the general government fund which is used for a wide range of government expenses. 

Is SSI the same as Social Security?

No, SSI is Supplemental Security Income. It's for disabled or blind people of all ages and people over age 65 with limited income and assets. SSI is administered by the Social Security Administration, but it is not funded by Social Security taxes. Instead, it's funded by the US Treasury which collects personal and corporate income taxes and other taxes. 

What's the difference between SSI and SSDI?

Both of these programs provide payments to disabled people. However, SSDI is funded by Social Security taxes, while SSI is funded by the Treasury (all other taxes). 

SSI is determined based on financial need. As of 2025, the maximum monthly payment for an individual is $967. SSDI, in contrast, is only available to disabled workers who have paid Social Security taxes, and the monthly benefit varies based on their earnings record. Some individuals may qualify to receive both SSI and SSDI payments.

What is the difference between Medicare and Medicaid?

Medicare is insurance for people over age 65 as well as people who have been on SSDI for at least 24 months or have End-Stage Renal Disease (ESRD) or ALS (Lou Gehrig's Disease). It's funded by Medicare taxes, and recipients pay premiums and co-pays. 

Medicaid is for people of all ages, with limited income and assets. It's funded by federal and state governments, and most recipients do not need to pay co-pays or premiums. Some individuals may qualify for both Medicare and Medicaid. 

Get Help With FICA Taxes

Are you facing a FICA tax problem? Are you an employer who has miscalculated or underpaid these taxes? Have you missed deposits and incurred a failure to deposit or Trust Fund Recovery Penalty? 

Are you an employee who has had excess FICA taxes withheld? Or an employee who doesn't know how to deal with FICA taxes on unreported tips? Are you a small business owner who needs to learn about tax planning strategies to minimize self-employment taxes? Dealing with payroll taxes can be complicated — but to protect your business, it's critical to know how to avoid common mistakes and stay compliant.

If you're dealing with payroll tax problems, it's time to get help. Use TaxCure to search for an experienced professional who can help guide you in the right direction and negotiate with the IRS on your behalf.