Tax Glossary
Key Tax TermFICA Taxes
FICA taxes are mandatory payroll taxes that fund Social Security and Medicare. These taxes are taken out of most employees' paychecks and matched by employers. If you're self-employed, you pay both shares yourself as part of self-employment tax.
💡Simple definition
FICA stands for the Federal Insurance Contributions Act. It requires workers and employers to pay taxes that support:
- ✓Social Security
- ✓Medicare
📊FICA tax breakdown
1️⃣Social Security tax
- •6.2% paid by the employee
- •6.2% paid by the employer
- •Applies only up to an annual wage limit ("wage base")
2️⃣Medicare tax
- •1.45% paid by the employee
- •1.45% paid by the employer
- •No income cap — applies to all wages
Total standard FICA rate for employees: 7.65%
(Employer pays another 7.65%)
💼Additional Medicare Tax
High-income earners pay an extra 0.9% Medicare tax on wages above certain thresholds.
⚠️ Employers do NOT match this additional tax.
👤If you're self-employed
Self-employed individuals pay both the employee and employer portions through the self-employment tax:
- •12.4% Social Security
- •2.9% Medicare
Total: 15.3%
💡 Good news: You can deduct the "employer half" when calculating your AGI.
🎯What FICA taxes pay for
These taxes fund federal benefit programs, including:
- ✓Retirement benefits
- ✓Disability benefits
- ✓Survivor benefits
- ✓Medicare health insurance for seniors
🧮Quick example
You earn $50,000 from your job. Your FICA withholding would be:
- •Social Security: 6.2% of $50,000 = $3,100
- •Medicare: 1.45% of $50,000 = $725
Total withheld: $3,825
Your employer pays the same amount.
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