FICA Tax

FICA is two taxes collected together. The Social Security part, formally old-age, survivors and disability insurance, is 6.2% of your wages. The Medicare part, formally hospital insurance, is 1.45%. Your employer withholds both from every paycheck, adds an equal amount of its own, and sends the total to the IRS. Your W-2 reports the wages and the tax in boxes 3 through 6.

Unlike income tax, FICA has no brackets, no standard deduction and no credits. It starts with the first dollar of pay at a flat rate. It also reaches pay that income tax skips for now: a traditional 401(k) deferral isn’t subject to income tax withholding when you make it, but it still counts as wages for Social Security and Medicare.

FICA applies only to pay for work as an employee: salaries, hourly wages, bonuses, commissions, reported tips and stock pay such as vested RSUs. Pensions, IRA and 401(k) withdrawals, Social Security benefits, interest, dividends, capital gains and rent never pay it, which is one reason the tax bill changes shape at retirement. People who work for themselves pay both halves at once as self-employment tax.

High earners owe one more layer. Wages above $200,000 ($250,000 on a joint return) carry the 0.9% Additional Medicare Tax, which has no employer match, so the employee’s Medicare rate on those dollars becomes 2.35%.

The two halves of FICA behave differently at higher pay. Social Security tax stops at the wage base, the most earnings that count toward Social Security in a year. For 2026 that base is $184,500, up from $176,100 in 2025, so no employee pays more than $11,439 of Social Security tax to one employer this year. Earnings above the base also don’t count toward your future benefit.

Medicare tax has no cap. Every dollar of wages pays 1.45%, and the 0.9% surtax is added above the thresholds below. The result is that FICA takes a flat 7.65% of pay up to $184,500 and a shrinking share above it, as the table below shows. It also adds to the tax on each extra dollar you earn: a raise from $150,000 to $170,000 loses 7.65% to FICA on top of your marginal income tax rate, while for a single filer the same raise from $300,000 to $320,000 loses 2.35%.

Pre-tax payroll deductions come in two kinds, and the difference shows up in your take-home pay. A 401(k) deferral cuts income tax but not FICA. A benefit paid through a cafeteria plan under section 125, such as your share of health premiums or a health FSA, generally cuts both, saving another 7.65% on every dollar below the wage base. The same goes for money your employer puts in a health savings account.

Because they skip FICA, a dollar of these benefits is worth more than a dollar of salary when you weigh a job’s total compensation. The main benefits that escape Social Security and Medicare tax in 2026, and the groups of workers outside all or part of FICA, are:

Each employer applies the wage base on its own, because none of them knows what the others pay you. If you change jobs midyear or hold two jobs and your combined wages pass $184,500, too much Social Security tax comes out. The fix happens on your tax return: the excess is a credit against your income tax, refunded or applied to what you owe.

The credit works only across employers. If a single employer withheld more than 6.2% of the wage base, you can’t claim it on your return; that employer should correct the overcollection, or you can request a refund on Form 843. Married couples filing jointly figure any excess separately for each spouse, because the wage base belongs to each worker, not to the household.

The opposite gap exists for Medicare. Employers withhold the 0.9% surtax only on wages they pay above $200,000, so two jobs or two working spouses can owe more than was withheld. The worked example below shows both effects at once.

FICA is a tax, not an account, but it is also what earns eligibility for two programs. Wages that pay Social Security tax earn credits toward Social Security: in 2026 each $1,890 of covered earnings is one credit, four at most for the year ($7,560), and 40 credits qualify you for a retirement benefit. The benefit itself is built from your 35 highest years of indexed earnings, each capped at that year’s wage base. Forty quarters of Medicare-covered work likewise make Part A hospital insurance premium-free at 65.

There is no age exemption: if you keep working after claiming Social Security or enrolling in Medicare, your wages still pay FICA, and a high-earning late year can replace a lower one in the benefit formula. Once the paychecks stop, so does FICA. A plan that ignores it overstates the cash available for saving while you work.