Payroll Taxes: Social Security and Medicare

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Payroll Taxes: Social Security and Medicare

Social Security and Medicare taxes (also referred to as FICA taxes)

Federal Insurance Contributions Act (FICA) tax is a United States federal payroll tax imposed on both employees and employers to fund Social Security and Medicare—federal programs that provide benefits for retirees, the disabled, and children of deceased workers.

FICA taxes are taken out of your paycheck at a tax rate of 6.2 percent each for employers and employees for Social Security, and 1.45 percent each for Medicare. That means both the employer and employee pay Social Security taxes at these rates on the first $168,600 of the employee’s wages in 2024. Once that limit is reached, no more taxes are withheld for Social Security for the rest of the calendar year. There is no limit to the amount of wages to which the Medicare tax applies. Withholding of these taxes is resumed at the beginning of the new calendar year. The withholding limit is tied to inflation, so it usually increases each year.

What is Social Security?

Social Security is a federal retirement and disability income program. Based on how much a person has earned during their lifetime, they receive benefits once they retire or if they become disabled. The earliest permissible age to receive Social Security benefits for retirement is currently 62. If they wait until age 65 to 70 to receive benefits, their monthly benefit is larger than if they started taking benefits at age 62. The benefits received do not equal what a person contributed into the system, as retired workers generally end up getting more in benefits than they contributed. Medicare taxes pay for the Medicare health care program, which provides health care coverage for all US citizens over the age of 65. Coverage includes hospitalization, care by physicians, and some drug and medical equipment benefits.