FICA, Explained

FICA is the line that quietly takes 7.65% of almost every paycheck, and most people never question it. It stands for the Federal Insurance Contributions Act, and it funds two things: Social Security and Medicare. Here's exactly how it's calculated, where it stops, and why freelancers pay twice as much.

The two pieces of 7.65%

Your FICA is really two separate taxes stacked together. Social Security is 6.2% of your wages, and Medicare is 1.45% — together, 7.65%. Your employer pays a matching 7.65% on top, which you never see on your stub but is part of what it costs to employ you. That hidden employer half is one reason your total compensation is more than your salary.

The Social Security wage cap

Social Security tax only applies up to an annual wage limit that rises most years. Once your year-to-date wages cross that cap, the 6.2% stops for the rest of the year — so high earners see their take-home tickup in the final months, then reset every January. Medicare hasno cap: the 1.45% applies to every dollar you earn, all year. This is why a big bonus late in the year is often taxed a little differently than the same bonus in January.

The extra 0.9% Medicare tax

Above a high income threshold, an additional 0.9% Medicare tax kicks in on the wages over that line. Employers start withholding it automatically once you pass the threshold with them, but it's tied to your total household situation at filing — so two-earner couples sometimes get a small surprise. If you're comparing offers at that income level, the offer comparison tools help you see real take-home, not just the headline number.

FICA applies before your 401(k) break — mostly

Here's a subtlety worth knowing: traditional 401(k) contributions lower your income tax, but they do not lower FICA. Social Security and Medicare are calculated on your pay before that retirement deduction. So contributing more to your 401(k) shrinks federal income tax withholding but leaves the 7.65% untouched — something the 401(k) per-paycheck calculator makes visible when you model a contribution.

Why the self-employed pay double

When you work for an employer, you pay half of FICA (7.65%) and they pay the other half. When you're self-employed, you're both — so you owe the full 15.3%, known as self-employment tax. That's the single biggest shock for new freelancers, and it's why a 1099 rate needs to be meaningfully higher than a W-2 salary to come out even. The side-gig tax calculator estimates what to set aside so that bill isn't a surprise in April.

The bottom line

FICA isn't withholding you get back at tax time like income tax — it's a flat contribution that funds benefits you'll draw on later. You can't adjust it on a W-4, and it comes out of essentially every dollar of wages up to the Social Security cap. Knowing it's there — and that it's 7.65% as an employee, 15.3% on your own — is the difference between a paycheck that makes sense and one that feels mysteriously light. To see it in context with every other deduction, walk through Paycheck 101.