FICA Tax Rate for 2023-2024: Everything You Need To Know
Written by
Joel Anderson
Edited by
Melanie Grafil
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Two of the largest pieces of the federal budget — accounting for over a third of total federal spending — are Medicare/Medicaid and Social Security. These two programs represent an essential safety net for most Americans, ensuring they won’t spend their golden years struggling to afford basic necessities. A type of payroll tax known as FICA funds a significant portion of these programs.
Here’s a closer look at the FICA tax rate, what your employer pays and how that can change if you’re self-employed.
Read More: Owe Money to the IRS? Most People Don’t Realize You Can Do This
What Is FICA?
FICA — aka Federal Insurance Contributions Act — tax is a U.S. federal payroll tax that is deducted from each paycheck. Overall, the FICA tax rate is 7.65%: 6.2% goes toward Social Security tax and 1.45% goes toward Medicare tax, which helps fund benefits for children, retirees and the disabled.
The acronym FICA stands for the Federal Insurance Contributions Act, which was the 1935 act that authorized collecting revenue through payroll taxes for Social Security. The use of payroll taxes was meant to ensure that the program would survive because eliminating the Social Security Administration and the payments it distributes would almost mean robbing people of a benefit they already paid for.
“We put those payroll contributions there so as to give the contributors a legal, moral and political right to collect their pensions and their unemployment benefits,” said President Franklin Roosevelt of the decision in 1941. “With those taxes in there, no damn politician can ever scrap my Social Security program.”
Medicare, meanwhile, came into existence in 1965 as a part of President Lyndon Johnson’s Great Society. It reflected the difficulties older Americans had in securing health insurance, given the high cost of covering the elderly.
FICA Tax Rate
The Social Security tax rate is 12.4% of your paycheck, and another 2.9% goes to Medicare, for a total FICA tax rate of 15.3%. If that seems steep, it’s because you aren’t paying the entirety. The taxes are split between you and your employer, so you’ll only see payroll tax rates of 6.2% withheld for Social Security and 1.45% for Medicare, and your company pays the remainder.
Those taxes are different for high earners, though. The IRS adds an additional Medicare tax of 0.90% for incomes over $200,000 ($250,000 for joint filers), bringing that total tax to 3.8%, of which employees owe 1.9%.
There is also a cap on wages subject to Social Security tax. It changes from year to year; the max Social Security taxable income for tax-year 2023 is $162,300, and for 2024 it’s $168,600. These caps reflect the fact that your ultimate Social Security benefit is also capped, so you won’t pay for any more than you can expect back when you reach retirement.
How Your FICA Supports Social Security and Medicare
So, you might be wondering: Are the Social Security taxes you pay held in a personal account you’ll be able to access once you retire and begin collecting Social Security? In a word: No.
Here’s how the SSA suggests you think about FICA: “The money you pay in taxes is not held in a personal account for you to use when you get benefits. Today’s workers help pay for current retirees’ and other beneficiaries’ benefits. Any unused money goes to the Social Security trust funds to help secure today and tomorrow for you and your family.”
If you’re self-employed, you pay into Social Security and Medicare through a different tax, called SECA, which stands for Self-Employment Contributions Act. This tax will be collected when you file your federal tax returns each year. You’ll also be responsible for both the employer and employee shares, meaning your contribution is 15.3% rather than 7.65%.
Neither FICA or SECA taxes fund Supplemental Security Income, or SSI, benefits, the AARP noted. Those are paid out of general tax revenues even though the program is administered by the SSA.
FICA Rate Different for Self-Employed Workers
Payroll taxes are fundamentally different for anyone who is self-employed. Whereas W-2 employees have FICA taxes withheld from their pay, the self-employed are responsible for reporting their own earnings and paying self-employment tax — the equivalent of FICA tax — when they file their tax returns.
Self-employment taxes come to 15.3% — 12.4% for Social Security and another 2.9% for Medicare. However, that changes for high earners, just like it does for FICA taxes, with your Social Security taxes only applying to the first $168,600 in income, and an additional 0.9% Medicare tax on earnings over $200,000 a year.
However, you aren’t on the hook for that entire amount. Half of your self-employment tax — the amount that would have been paid by your employer — is a tax write-off.
Self-employment taxes are usually paid each quarter, as part of your estimated tax payment. Use Form 1040-ES to calculate your estimated tax payments for 2024. There is a penalty for failing to send in your estimated tax payments, but the majority of taxpayers avoid this if they owe less than $1,000 after subtracting all withholdings and credits.
Does Everyone Pay FICA Tax?
Most employed and self-employed people pay FICA tax, but there are exceptions. Members of certain religious groups and some nonresident aliens are exempt.
Is FICA the Same as Federal Withholding?
No. Although FICA is a federal tax that is withheld from your pay, “federal withholding” refers to the federal income tax withheld from your pay. If you’re a W-2 employee, you’ll see your federal income tax withholding in box 2 of your W-2 form. Social Security and Medicare withholdings are listed in box 4 and box 5.
FAQ
Nearly everyone who earns income pays FICA tax, so it's a good idea to understand all you can about it and about income taxes in general.- How much is FICA tax in 2023?
- The 2023 FICA tax rate is 15.3%, but if you're a W-2 employee, your employer likely will pay half. Taxpayers in higher federal income tax brackets -- specially, those with over $200,000 in income -- pay an additional 0.90% Medicare tax.
- What is the capital gains tax rate?
- Short-term capital gains are taxed at your federal income tax rate. Long-term capital gains tax rates vary from 0% to 20%, depending on your income.
- How long does it take to get a tax refund?
- Most taxpayers receive their refunds within 21 days, according to the IRS, but how long it takes to get your refund depends on whether you request a check or direct deposit (direct deposit is faster) and whether your return requires additional review.
Daria Uhlig, Vance Cariaga and Cynthia Measom contributed to the reporting for this article.
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