FICA is an acronym for a specific type of federal payroll tax. FICA stands for the Federal Insurance Contributions Act, and business owners are legally required to deduct this tax from each employee’s paycheck.
The main purpose of FICA is to help fund Social Security and Medicare programs, which provide benefits for retirees, disabled individuals, and children who are eligible for them.
What is the FICA Tax on my Paycheck?
Have you ever stared at your paycheck and wondered what a FICA tax was? It consists of two payroll taxes (one for Social Security and one for Medicare) applied to every paycheck. Employers must pay both the taxes withheld from employee paychecks, as well as their own matching tax contributions, to the IRS on a quarterly basis. However, it’s important to note that this tax only applies to an employee’s earned income.
Is FICA the Same as the Social Security tax?
FICA and Social Security tax are closely related but not the same. FICA, the Federal Insurance Contributions Act, refers to the taxes that largely fund Social Security but also contribute to the Medicare fund. It’s a combination of two funds – one tax for employees and one for employers.
How Much is the FICA tax?
The rates vary, but they don’t change on a set schedule. Changes to FICA would only occur if it were decided by the federal government and are made through active legislation.
For 2025, the current tax rate for Social Security is 6.2% for the employer and 6.2% for the employee, or 12.4% total. The current rate for Medicare is 1.45% for the employer and 1.45% for the employee, or 2.9% total. Employers also have to pay this tax by matching each employee’s contribution dollar-for-dollar, up to the same maximum wage base limit.
The wage base limit for 2025 is $176,100 (which is up from $168,600 in 2024). If you make more than 200,000 in a calendar year, your employer must withhold an additional 0.9% and there is no additional medicare tax withholding.
Why am I Paying FICA Tax?
Paying FICA taxes is mandatory in the United States. One way to look at it is an investment for the future. It is basically a way for a person who works to contribute to the economy and fund benefits for retirees, people with disabilities, and others who qualify for these services.
Do you Get FICA Taxes Back?
Employers use your nine-digit number known as the social security number to accurately record your covered wages or self-employment. As you work and pay FICA taxes, you earn credits for Social Security benefits in the future.
To be eligible for most types of benefits, you must have earned an average of one work credit for each calendar year between age 21 and the year you reach age 62. FICA’s retirement benefits are only available to individuals after the age of 62. You can apply for Social Security benefits online, by phone, or in person.
Takeaways of FICA
FICA is a government-created tax that is used to fund benefits for its citizens.
The Social Security part of the tax helps provide retirement benefits, disability benefits, and survivor benefits.
The primary goal of this tax is to make sure that when you retire, the years of service that you have worked don’t go without notice, and that you have some financial assistance later in life.
This is also an important funding tax if you can’t work due to disability.
The Medicare part of the contribution helps cover healthcare costs for people 65 and older or for those with certain disabilities. Should you ever need these benefits, you would have the privilege to apply.
We know that paying taxes is never fun, but taxes help fund our economy and pay for essentials like roads, schools, and other important necessities. In this case, FICA pays for Social Security benefits and Medicare. An essential part of being a U.S. citizen and being able to use those benefits when we need them the most.
