Are 403(b) Contributions Subject to FICA Taxes?

Yes. Your own elective deferrals to a 403(b) plan are subject to FICA taxes, so Social Security and Medicare are withheld on every dollar you defer, even though a traditional pre-tax deferral reduces your federal income tax. Employer contributions are treated the other way: they’re excluded from FICA entirely, both when they go into the plan and when you take them out.1Internal Revenue Service. Retirement Plan FAQs Regarding Contributions – Are Retirement Plan Contributions Subject to Withholding for FICA, Medicare or Federal Income Tax

Why Your Elective Deferrals Still Count as FICA Wages

When you contribute part of your salary to a 403(b), that money still counts as wages for Social Security and Medicare purposes. The Internal Revenue Code specifically provides that amounts deferred under a cash-or-deferred arrangement are not excluded from the definition of “wages” used to calculate FICA taxes, even when those same amounts are excluded from gross income for federal income tax.2Office of the Law Revision Counsel. 26 U.S. Code 3121 – Definitions The IRS confirms this by directing employers to include all employee pre-tax, after-tax, and designated Roth contributions in Social Security and Medicare wages on the W-2.1Internal Revenue Service. Retirement Plan FAQs Regarding Contributions – Are Retirement Plan Contributions Subject to Withholding for FICA, Medicare or Federal Income Tax

The rule applies equally to traditional pre-tax deferrals and Roth 403(b) contributions. A traditional deferral lowers your federal taxable income but not your FICA wages. A Roth contribution lowers neither, because it’s made with after-tax dollars. Either way, FICA hits the full amount.

The practical effect: a $500 per-paycheck deferral saves you federal income tax now, but it doesn’t save you a penny in payroll taxes.

Why Employer Contributions Are Excluded

Employer contributions to your 403(b), whether matching funds or non-elective contributions, are treated entirely differently. These amounts are excluded from the definition of wages for FICA purposes. Your employer owes no Social Security or Medicare tax on the contribution, and neither do you.

The same exclusion applies for federal income tax. Employer contributions don’t appear in W-2 Box 1 and create no current income tax liability. The money moves into the plan clean.

The FICA exclusion is permanent, not a deferral. When you eventually withdraw those funds in retirement, you’ll owe federal income tax on them (since they were never taxed as income), but no Social Security or Medicare tax will apply. The “deferred” part of tax-deferred retirement savings refers only to income tax.

How Your W-2 Reflects the Split

The gap between income tax treatment and FICA treatment shows up clearly on the W-2. Take an employee earning $5,000 per month who makes a $500 pre-tax 403(b) deferral each month:

  • Box 1 (federal income taxable wages): $4,500 per month. The $500 deferral is excluded.
  • Box 3 (Social Security wages): $5,000 per month. The deferral is included.
  • Box 5 (Medicare wages): $5,000 per month. The deferral is included.

The IRS instructs employers to include all employee pre-tax, after-tax, and designated Roth contributions in Boxes 3 and 5.1Internal Revenue Service. Retirement Plan FAQs Regarding Contributions – Are Retirement Plan Contributions Subject to Withholding for FICA, Medicare or Federal Income Tax That’s why the Social Security and Medicare lines on your paystub can look disproportionately large even when you’re deferring aggressively. You’re saving on income tax, not on payroll tax.

Social Security Wage Base and Medicare

FICA has two components. The Social Security (OASDI) tax is 6.2% on the employee’s share, matched by the employer at 6.2%.3GovInfo. 26 U.S. Code 3101 – Rate of Tax It only applies up to the annual wage base, which for 2026 is $184,500.4Social Security Administration. What Is the Current Maximum Amount of Taxable Earnings for Social Security? Once your cumulative Box 3 wages hit that ceiling, Social Security withholding stops for the rest of the year.5Social Security Administration. Contribution and Benefit Base

Because your deferrals count toward that wage base, they don’t push the cap further out. If your salary is near $184,500, you’ll hit the Social Security ceiling at roughly the same point whether you defer or not.

Medicare (Hospital Insurance) is 1.45% on the employee’s share, matched by the employer at 1.45%.3GovInfo. 26 U.S. Code 3101 – Rate of Tax Medicare has no wage cap. Every dollar of wages, deferrals included, is subject to it.6Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates

Additional Medicare Tax for Higher Earners

An extra 0.9% Additional Medicare Tax applies to wages above certain filing-status thresholds: $200,000 for single or head of household, $250,000 for married filing jointly, and $125,000 for married filing separately. Employers withhold the surtax on wages above $200,000 regardless of filing status.7Internal Revenue Service. Questions and Answers for the Additional Medicare Tax

Because deferrals stay in the FICA wage base, they count toward that $200,000 withholding trigger. A traditional deferral won’t shield you from the surtax the way it lowers your regular income tax. Above the threshold, your combined Medicare rate reaches 2.35%.

Public School and Government Employees

Many 403(b) participants work for public schools or state institutions, and not all of them participate in Social Security. Coverage depends on whether the state has a Section 218 Agreement covering your position.8Social Security Administration. Section 218 Agreements

A Section 218 Agreement is a voluntary arrangement between a state and the Social Security Administration extending Social Security and Medicare coverage to state and local government employees. These agreements cover positions rather than individuals, so your coverage turns on whether your specific job category was included when the state entered the agreement.8Social Security Administration. Section 218 Agreements A public retirement system can be covered only after a majority referendum among eligible members.

If your position isn’t covered, you’re exempt from the 6.2% Social Security tax. You still pay the 1.45% Medicare tax, plus the Additional Medicare Tax if you’re above the threshold. In that case, your 403(b) deferrals raise your Medicare wages but not your Social Security wages, because there are none to report. This arrangement is common for teachers and school administrators in states that run their own pension systems.

What Happens at Distribution

When you withdraw money from a 403(b), no FICA tax applies. That’s true whether the money came from your own deferrals or from employer contributions. Your deferrals were already hit with Social Security and Medicare when the wages were earned; employer contributions were permanently excluded.

Income tax is a separate matter. Distributions from traditional pre-tax contributions and all investment earnings are taxed as ordinary income, reported on Form 1099-R.9Internal Revenue Service. About Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Qualified distributions from a Roth 403(b) are free of federal income tax; qualification requires the account to have been open at least five tax years (counting the year of your first Roth contribution) and the distribution to occur after you reach 59½, become disabled, or pass away.10Internal Revenue Service. Retirement Topics – Designated Roth Account

Withdrawals before 59½ face an additional 10% tax on top of regular income tax, unless an exception applies.11Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions That’s an income tax penalty. FICA still doesn’t enter the picture, regardless of your age or reason for withdrawing.