A Guide to FICA Taxes: Social Security and Medicare

Understanding FICA

If you've ever looked at your pay stub, you've likely seen a deduction labeled "FICA," "OASDI," or "Med/EE." FICA stands for the Federal Insurance Contributions Act. It is a mandatory payroll tax that funds two major government programs: Social Security and Medicare.

How Much is FICA?

For most employees, the total FICA tax rate is 7.65% of your gross pay. This is broken down into two parts:

1. Social Security (OASDI): 6.2% of your gross pay.
2. Medicare: 1.45% of your gross pay.

It's important to note that your employer also pays a matching 7.65% on your behalf, bringing the total contribution to the government to 15.3%.

The Wage Base Limit

There is a cap on the amount of income subject to the Social Security portion of the FICA tax, known as the wage base limit. Once your earnings for the year exceed this limit (which is adjusted annually for inflation), you no longer pay the 6.2% Social Security tax for the remainder of the year.

However, there is no wage base limit for the Medicare tax; you pay 1.45% on all your earned income.

Additional Medicare Tax

High earners may also be subject to an Additional Medicare Tax of 0.9% on earnings that exceed a certain threshold (e.g., $200,000 for single filers). Unlike the standard FICA tax, employers do not match this additional 0.9%.

Where Does the Money Go?

• Social Security: Funds retirement benefits, disability benefits, and survivor benefits for eligible individuals and their families.
• Medicare: Funds hospital insurance (Part A) for individuals aged 65 and older, as well as certain younger people with disabilities.