Paycheck guides
Two taxes, one line on your paystub, and one of them switches off partway through the year for high earners. The mechanics are simpler than the acronym suggests.
FICA stands for the Federal Insurance Contributions Act, which is a legislative name doing nothing to explain itself. In practice it is two separate payroll taxes collected together: one funds Social Security, the other funds Medicare. Between them they take 7.65% of most paychecks, and unlike income tax, there is no deduction, no bracket and no filing status to soften them.
| Social Security | Medicare | |
|---|---|---|
| Employee rate | 6.2% | 1.45% |
| Employer rate | 6.2% | 1.45% |
| 2026 wage ceiling | $184,500 | None |
| Maximum employee cost | $11,439.00 | Unlimited |
Your employer matches every dollar you pay, so the true cost of employing you includes another 7.65% you never see. If you are self-employed you pay both halves yourself — 15.3% — through self-employment tax, with a deduction for the employer portion.
Social Security tax applies only to the first $184,500 of wages in 2026, up from $176,100 in 2025. Once your year-to-date pay crosses that line, the 6.2% stops for the rest of the calendar year and your take-home jumps.
Someone earning $240,000 hits the ceiling in early August. From that paycheck onward they keep an extra 6.2% of gross — roughly $1,240 a month on a $20,000 monthly salary — until 1 January, when the counter resets and the deduction reappears. This surprises people every year in both directions.
The ceiling is per employer, not per person. Change jobs mid-year and the new employer starts your Social Security wage count at zero. If your combined wages exceed the base you will over-pay, and you claim the excess back as a credit on your return. Neither employer did anything wrong.
The 1.45% Medicare tax applies to every dollar of wages, with no cap at any income level. On top of that, the Additional Medicare Tax adds 0.9% on wages above a threshold:
There is no employer match on the additional 0.9% — it is yours alone. And employers are required to begin withholding it once your wages with them pass $200,000, whatever your filing status. That produces two predictable mismatches:
Form 8959 reconciles whatever was withheld against what is actually due.
This is where FICA behaves differently from income tax, and where a lot of retirement-planning intuition goes wrong.
| Deduction | Cuts income tax? | Cuts FICA? |
|---|---|---|
| Traditional 401(k) deferral | Yes | No |
| Roth 401(k) contribution | No | No |
| Health insurance premium (cafeteria plan) | Yes | Yes |
| HSA via payroll deduction | Yes | Yes |
| FSA — health or dependent care | Yes | Yes |
Retirement deferrals are the exception that catches people out. Putting $24,500 into a traditional 401(k) in 2026 removes $24,500 from your income-tax base but nothing from your FICA base. You still pay $1,874 in FICA on that money.
Payroll-deducted health and HSA money is the genuinely efficient category: it escapes income tax and both halves of FICA. A $4,400 HSA contribution through payroll saves the 7.65% as well as your marginal income tax rate — which is why funding an HSA at work beats funding one yourself and deducting it later.
FICA is flat and unavoidable at the bottom of the income scale and regressive at the top, because the Social Security half stops. A worker on $50,000 pays 7.65% on every dollar. A worker on $500,000 pays 7.65% on the first $184,500 and 2.35% on the rest, for an effective FICA rate around 4.5%.
That structure is deliberate — Social Security benefits are also capped, so contributions stop where benefit accrual stops. But it means that for most households FICA is a larger bill than federal income tax, and it is the part of the paystub least affected by anything you can control.
Sources: IRS Publication 15 (Circular E) for 2026; Social Security Administration, Contribution and Benefit Base; IRS Topic No. 560, Additional Medicare Tax; IRS Notice IR-2025-111 for 2026 retirement plan limits; IRS Revenue Procedure 2025-19 for HSA limits.
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