What is the FICA Tax and How Does it Connect to Social Security?

Copy of paystub showing deductions.
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If you earn a paycheck in the United States, you’ve probably seen “FICA” somewhere among the taxes, but might not have known what it means.

See: Unclear on Social Security Benefits? These Are the 4 Types Seniors Should Know
Find: Social Security Got Its Biggest COLA Bump Ever – Are Rising Food Prices Covered?

The short answer is, FICA stands for Federal Insurance Contributions Act. It’s deducted from each paycheck and comprises two different “contributions” (e.g., taxes): Social Security tax and Medicare tax. As the Social Security Administration notes on its website, FICA helps fund both programs, which provide benefits to retirees, the disabled and children.

FICA taxes currently equal 7.65% of your gross wages. Here’s how they break down:

  • 6.2% of your gross wages goes to Social Security tax
  • 1.45% of your gross wages goes to Medicare tax

In both cases, your employer must match these percentages to bring the total to 15.3%.

It’s important to keep in mind that there is an income threshold — called “maximum taxable earnings” — after which you no longer have to pay Social Security taxes. In 2021, that threshold is $142,000, according to the AARP. Any money earned above that is not subject to Social Security taxes, but you’ll still have to pay the Medicare tax no matter how much you earn.

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So, you might be wondering: Are the Social Security taxes you pay held in a personal account you’ll be able to access once you retire and begin collecting Social Security?. In a word: No.

Here’s how the SSA suggests you think about FICA: “The money you pay in taxes is not held in a personal account for you to use when you get benefits. Today’s workers help pay for current retirees’ and other beneficiaries’ benefits. Any unused money goes to the Social Security trust funds to help secure today and tomorrow for you and your family.

If you’re self-employed, you pay into Social Security and Medicare through a different tax, called SECA, which stands for Self-Employment Contributions Act. This tax will be collected when you file your federal tax returns each year. You’ll also be responsible for both the employer and employee shares, meaning your contribution is 15.3% rather than 7.65%.

See: 5 Social Security Benefits You Can Claim Online
Find: 5 Things Most Americans Don’t Know About Social Security

Neither FICA or SECA taxes fund Supplemental Security Income (SSI) benefits, the AARP noted. Those are paid out of general tax revenues even though the program is administered by the SSA.

Retire Comfortably

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About the Author

Vance Cariaga is a London-based writer, editor and journalist who previously held staff positions at Investor’s Business Daily, The Charlotte Business Journal and The Charlotte Observer. His work also appeared in Charlotte Magazine, Street & Smith’s Sports Business Journal and Business North Carolina magazine. He holds a B.A. in English from Appalachian State University and studied journalism at the University of South Carolina. His reporting earned awards from the North Carolina Press Association, the Green Eyeshade Awards and AlterNet. In addition to journalism, he has worked in banking, accounting and restaurant management. A native of North Carolina who also writes fiction, Vance’s short story, “Saint Christopher,” placed second in the 2019 Writer’s Digest Short Short Story Competition. Two of his short stories appear in With One Eye on the Cows, an anthology published by Ad Hoc Fiction in 2019. His debut novel, Voodoo Hideaway, was published in 2021 by Atmosphere Press.

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