FICA (Federal Insurance Contributions Act)
The combined payroll tax of 7.65% (6.2% Social Security + 1.45% Medicare) that funds Social Security and Medicare programs.
How It Works
FICA stands for the Federal Insurance Contributions Act, which established the payroll tax system funding Social Security and Medicare. The combined employee rate is 7.65%: 6.2% for Social Security (on wages up to $176,100 in 2025) and 1.45% for Medicare (on all wages). Employers pay a matching 7.65%, making the total FICA burden 15.3% of wages. For most workers, FICA is the largest tax they pay — a worker earning $50,000 pays $3,825 in FICA, often more than their federal income tax after deductions and credits. Unlike income tax, FICA has no standard deduction, no brackets for the main rate, and no exemptions for low-income earners. This makes it effectively regressive, particularly the Social Security portion with its wage cap. FICA taxes are withheld from every paycheck and are not subject to adjustment at tax time — you can't claim a FICA refund through deductions or credits (though excess Social Security tax from multiple employers can be refunded). Self-employed individuals pay the equivalent through the self-employment tax at the full 15.3% rate, though they deduct half of the SE tax as an above-the-line adjustment to income. Understanding FICA is essential for comparing W-2 employment to self-employment because the employer's matching share is an invisible cost of employment that becomes visible when you're self-employed.
Related Terms
Social Security Tax
A payroll tax of 6.2% on wages up to the annual wage base ($176,100 in 2025) that funds the Social Security retirement and disability program.
Medicare Tax
A payroll tax of 1.45% on all wages with no income cap, plus an additional 0.9% on wages above $200,000 for single filers.
Self-Employment Tax
The 15.3% tax on net self-employment earnings that covers both the employee and employer portions of Social Security (12.4%) and Medicare (2.9%).
W-2 vs. 1099
The two primary employment classifications for tax purposes: W-2 employees have taxes withheld by employers, while 1099 independent contractors pay their own taxes including self-employment tax.