FICA Payroll Taxes Explained: Social Security & Medicare
Most W-2 wages are subject to FICA taxes, though there are exceptions. This guide explains how the Federal Insurance Contributions Act funds Social Security and Medicare, the 2026 wage base cap, and high-income surtaxes.
What is FICA?
The Federal Insurance Contributions Act (FICA), codified in Title 26, Subtitle C of the Internal Revenue Code, requires employers and employees to fund federal social insurance programs through payroll taxes.
For standard W-2 employees, the FICA tax rate is 7.65% of gross wages, consisting of two distinct components:
- Social Security (OASDI): 6.20% withheld from wages up to the annual wage base.
- Medicare (hospital insurance): 1.45% withheld from all wages with no annual cap.
Employers are required by law to match this contribution dollar-for-dollar, paying an additional 7.65% from company funds. Independent contractors and self-employed individuals pay both portions (15.3% total) under the Self-Employment Contributions Act (SECA).
The 2026 Social Security wage base limit ($184,500)
Unlike Medicare, Social Security tax is not levied on unlimited earnings. The Social Security Administration (SSA) adjusts the taxable maximum wage base annually based on the National Average Wage Index.
For Tax Year 2026, the Social Security wage base is set at $184,500. This means:
- The maximum employee Social Security tax that can be withheld in 2026 is $11,439.00 ($184,500 × 6.20%).
- Once your cumulative gross earnings pass $184,500 within the calendar year, your employer stops withholding the 6.2% Social Security tax for the remainder of the year.
- Your paychecks for the remainder of the year experience an instant 6.2% "take-home pay raise"!
Medicare tax & the 0.9% Additional Medicare surtax
Standard Medicare tax applies to 100% of earned income at a flat 1.45% with no income ceiling. However, the Affordable Care Act (ACA) introduced the 0.9% Additional Medicare Tax on high earners.
An employer must start withholding the extra 0.9% when wages it pays you exceed $200,000, regardless of filing status. On your return, final liability uses these thresholds for combined Medicare wages and self-employment income:
- Single / head of household: Wages exceeding $200,000
- Married filing jointly: Wages exceeding $250,000
- Married filing separately: Wages exceeding $125,000
Unlike standard FICA, the 0.9% Additional Medicare Tax is paid entirely by the employee with zero employer match.
FICA exclusions: pre-tax benefit savings
Certain employee benefits reduce FICA payroll tax liability, directly increasing your take-home pay efficiency:
- Section 125 cafeteria plans: Pre-tax employee contributions to employer-sponsored medical, dental, and vision insurance premiums are exempt from both federal income tax and FICA taxes.
- Health savings accounts (HSA): Pre-tax payroll contributions to an HSA through a qualifying cafeteria plan avoid FICA taxes, subject to eligibility and annual contribution limits. Direct personal contributions do not reduce FICA; see IRS Publication 969.
- Flexible spending accounts (FSA): Healthcare and Dependent Care FSAs are also exempt from FICA withholdings.
- Important Distinction: Traditional 401(k) and 403(b) retirement contributions reduce federal income tax, but are still subject to FICA taxes.
To inspect your estimated paycheck FICA deductions, use our interactive Paycheck Calculator.