---
title: FICA (Social Security and Medicare tax) — what it means and why it matters | Allocate AI
description: Payroll taxes taken from every paycheck: 6.2% for Social Security up to a yearly wage cap and 1.45% for Medicare with no cap, matched by your employer.
canonical: https://allocateai.io/glossary/fica
site: Allocate AI — https://allocateai.io
---

# FICA (Social Security and Medicare tax)

Payroll taxes taken from every paycheck: 6.2% for Social Security up to a yearly wage cap and 1.45% for Medicare with no cap, matched by your employer.

FICA stands for the Federal Insurance Contributions Act, and it is the line on your pay stub that funds Social Security and Medicare. Two pieces come out of every paycheck. Social Security takes 6.2% of wages up to an annual cap, $184,500 in 2026, and nothing above that. Medicare takes 1.45% of all wages with no cap. Your employer pays a matching 7.65% that never appears on your stub.

On a $100,000 salary, FICA is $7,650 for the year: $6,200 for Social Security and $1,450 for Medicare. On a $250,000 salary, Social Security stops at $11,439 once wages pass the cap, while Medicare keeps going at $3,625, plus the additional 0.9% Medicare tax on wages above $200,000.

Two things make FICA different from income tax. It applies from the first dollar, with no standard deduction and no brackets, so it takes a bigger share from lower earners. And it is not reduced by 401(k) contributions, though it is reduced by pre-tax health premiums and HSA contributions made through payroll.

The common mistake is forgetting FICA when estimating take-home pay or the net value of a bonus. Bonuses and RSU vests are subject to it just like salary. Self-employed people pay both halves, 15.3%, which is one reason freelance income needs a higher rate than salary to break even.

[Try the After-Tax Income Calculator →](https://allocateai.io/calculators/after-tax-income)

## Related terms

- [Social Security wage base](https://allocateai.io/glossary/social-security-wage-base) — The maximum amount of yearly wages subject to Social Security tax, $184,500 in 2026; income above it is not taxed for Social Security.
- [Additional Medicare tax](https://allocateai.io/glossary/additional-medicare-tax) — An extra 0.9% Medicare tax on wages above $200,000 for single filers or $250,000 for married couples, on top of the regular 1.45%.
- [Take-home pay (gross vs net)](https://allocateai.io/glossary/take-home-pay) — The amount that actually reaches your bank account after taxes, insurance, and retirement contributions come out of your gross pay.

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Allocate AI is a budgeting and financial-planning app: link your accounts, say what you want in plain words, and it writes the plan and stages every change for your approval. Read more at https://allocateai.io or see all pages in https://allocateai.io/llms.txt.