What is FICA? The 7.65% on every paycheck

Federal Insurance Contributions Act, the 1935 law that funds Social Security and, since 1965, Medicare through payroll taxes. On a pay stub it may appear as FICA, OASDI (Social Security), Med or HI (Medicare).

7.65% for employees: 6.2% Social Security on wages up to $184,500, and 1.45% Medicare on all wages. Employers pay a matching 7.65%. Self-employed people pay both halves, 15.3%, as self-employment tax, but can deduct half of it.

Social Security stops once your wages pass the annual wage base, $184,500 in 2026. Medicare has no cap, and an Additional Medicare Tax of 0.9% applies to wages above $200,000 (single) or $250,000 (married filing jointly), paid by the employee only.

No. Traditional 401(k) contributions reduce income tax but not Social Security or Medicare wages. Section 125 cafeteria-plan deductions such as health insurance premiums and FSA contributions do reduce FICA wages.

Three, none of which come out of your pay. It matches your 7.65% FICA. It pays FUTA, the federal unemployment tax, at 6% on the first $7,000 of your wages, usually reduced to 0.6% by a credit for paying state unemployment tax. And it pays SUTA, state unemployment tax, at a rate set by your state and by how many former employees have claimed benefits. Your gross pay is therefore roughly 8% cheaper than you cost your employer.

You pay both halves, 15.3%, as self-employment tax: 12.4% Social Security up to the wage base and 2.9% Medicare with no cap. You can deduct the employer half when working out your income tax, and you pay it in quarterly estimated payments rather than through withholding, because nobody is withholding for you. This is the single biggest surprise for people moving from a W-2 job to contracting.

Not normally. Unlike income tax withholding there is no annual reconciliation. The exception is if you had more than one employer and your combined Social Security withholding exceeded the wage-base maximum; the excess is claimed as a credit on your Form 1040.