FICA is based on your gross wages, not your net take-home pay. Social Security and Medicare taxes come out of your paycheck before income taxes, health premiums, and 401(k) contributions reduce what you actually deposit. So when someone asks whether FICA is based on gross or net income, the short answer is gross, with a few pre-tax benefits carved out by law.1Internal Revenue Service. IRS Instructions for Forms W-2 and W-3 – Section: Box 3—Social security wages
The wages FICA is calculated on show up in Box 3 (Social Security wages) and Box 5 (Medicare wages) of your W-2. Net income is what lands in your bank account after every deduction and withholding has already been taken.1Internal Revenue Service. IRS Instructions for Forms W-2 and W-3 – Section: Box 3—Social security wages
Which Pre-Tax Deductions Actually Reduce FICA Wages
This is where the gross-versus-net question gets slippery. A pre-tax deduction reduces your federal income tax, but that doesn’t automatically mean it reduces your FICA base.
Some qualified benefits offered through a Section 125 cafeteria plan can be excluded from FICA wages. Elective deferrals to a 401(k), on the other hand, do not reduce the FICA base even though they lower your federal income tax liability. Employer contributions to a qualified retirement plan, such as a 401(k) match, aren’t subject to FICA either. Payments received under workers’ compensation for a job-related injury or illness are also exempt.2Internal Revenue Service. IRS Retirement Plan FAQs – Section: Are retirement plan contributions subject to withholding for FICA, Medicare or federal income tax?3Internal Revenue Service. IRS Revenue Bulletin 2005-14
That’s why the wages reported for FICA and for federal income tax can differ on the same W-2. They follow different rulebooks.1Internal Revenue Service. IRS Instructions for Forms W-2 and W-3 – Section: Box 3—Social security wages
The Rates and the Social Security Wage Cap
FICA has two parts. Social Security (OASDI) is withheld at 6.2% from the employee, matched by 6.2% from the employer. Medicare (HI) is 1.45% from each side.4Internal Revenue Service. IRS Tax Topic 751 – Section: Social Security and Medicare withholding rates
Social Security applies only up to an annual wage base. For 2024, that limit is $168,600. Once your year-to-date wages with a single employer hit that amount, Social Security withholding stops for the rest of the calendar year.5Social Security Administration. SSA Contribution and Benefit Base
Medicare has no wage cap. High earners also owe an Additional Medicare Tax of 0.9% on wages above certain thresholds:6Internal Revenue Service. IRS Tax Topic 751 – Section: Wage base limits7Internal Revenue Service. IRS Additional Medicare Tax Q&A – Section: When are individuals liable for Additional Medicare Tax?
- $250,000 for married couples filing jointly
- $125,000 for married individuals filing separately
- $200,000 for all other filers
Your employer must start withholding the 0.9% surtax once your wages with them exceed $200,000 in a year, regardless of your actual filing status. Employers don’t match the Additional Medicare Tax; their share stays at 1.45%.8Internal Revenue Service. IRS Tax Topic 751 – Section: Additional Medicare tax withholding rate
Checking Your Paystub
To confirm FICA is being calculated correctly, look at gross wages for the pay period, subtract any Section 125 cafeteria plan benefits that qualify for the exclusion, and apply 6.2% and 1.45% to what remains. Do not subtract 401(k) contributions before running the math. If your Box 1 (federal wages) and Box 3 (Social Security wages) on the W-2 don’t match, that gap is usually your 401(k) deferrals working exactly as designed: shielded from income tax, still subject to FICA.1Internal Revenue Service. IRS Instructions for Forms W-2 and W-3 – Section: Box 3—Social security wages
If You’re Self-Employed
Self-employed workers don’t pay FICA in the paycheck sense; they pay Self-Employment Tax on Schedule SE at a combined 15.3% (12.4% Social Security plus 2.9% Medicare), covering both the employee and employer halves. The base is net earnings from self-employment, calculated as net business profit multiplied by 92.35%. The same $168,600 Social Security cap and the 0.9% Additional Medicare Tax thresholds apply.9Internal Revenue Service. IRS Self-Employment Tax (Social Security and Medicare Taxes)10Internal Revenue Service. IRS Publication 334 – Section: Regular Method So for the self-employed, the base is closer to net than gross, but it’s net business income, not net take-home pay.