FICA Taxes

The mandatory payroll taxes that fund Social Security and Medicare — split equally between employer and employee at 7.65% each.

FICA stands for the Federal Insurance Contributions Act — the law that mandates payroll taxes funding Social Security and Medicare. Every W-2 employee pays 7.65% of their gross wages in FICA taxes: 6.2% for Social Security (up to the annual wage base, which is $168,600 in 2024) and 1.45% for Medicare (with no cap). Employers match this 7.65%, meaning the full FICA contribution is 15.3% of wages. The employee's share appears as two separate line items on every pay stub.

The Social Security wage base cap is important: once your annual earnings exceed $168,600, you stop paying the 6.2% Social Security portion for the rest of the year. This means high earners see a noticeable jump in take-home pay mid-year when they cross the cap. The 1.45% Medicare tax has no cap — it applies to every dollar earned. Additionally, high earners (above $200,000 for single filers, $250,000 for married filing jointly) pay an additional 0.9% Medicare surtax, which employers don't match.

For self-employed individuals and 1099 contractors, there's no employer to split the FICA burden — they pay both halves themselves as 'self-employment tax,' totaling 15.3% on net self-employment income. However, self-employed people can deduct half of their self-employment tax from their gross income on their federal tax return. This is a major factor in the true cost comparison between W-2 employment and independent contracting.