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 put in, whether the contribution is traditional pre-tax or designated Roth. Employer contributions are the exception: matching and non-elective contributions your employer makes on your behalf are excluded from FICA entirely. This is why 403(b) contributions and FICA taxes behave differently from the way they behave for federal income tax, and why your W-2 can show two different wage numbers for the same paycheck.
Why Your Deferrals Get Taxed for Social Security and Medicare
When you redirect part of your salary into a 403(b), the money still counts as wages for Social Security and Medicare. The Internal Revenue Code specifically says amounts deferred under a cash-or-deferred arrangement are not excluded from the definition of “wages” used to calculate FICA, even when those same amounts can be excluded from gross income for federal income tax.1Office of the Law Revision Counsel. 26 U.S. Code 3121 – Definitions The IRS tells employers to include all employee pre-tax, after-tax, and designated Roth contributions in Social Security and Medicare wages on the W-2.2Internal Revenue Service. Retirement Plan FAQs Regarding Contributions – Are Retirement Plan Contributions Subject to Withholding for FICA, Medicare or Federal Income Tax
Traditional pre-tax deferrals lower your federal taxable income but not your FICA wages. Roth 403(b) contributions don’t lower either number because they’re made with after-tax dollars. Either way, FICA applies to the full amount. A $500 per-paycheck pre-tax deferral saves you federal income tax now and won’t save you a dollar in payroll taxes.
How Your W-2 Reflects the Split
The gap between income tax treatment and FICA treatment appears directly on your W-2. Take an employee earning $5,000 a month who defers $500 pre-tax each month:
- Box 1 (federal income taxable wages) shows $4,500 per month, with the $500 deferral excluded.
- Box 3 (Social Security wages) shows $5,000 per month, with the deferral included.
- Box 5 (Medicare wages) shows $5,000 per month, with the deferral included.
The IRS instructs employers to include all employee pre-tax, after-tax, and designated Roth contributions in Boxes 3 and 5.2Internal Revenue Service. Retirement Plan FAQs Regarding Contributions – Are Retirement Plan Contributions Subject to Withholding for FICA, Medicare or Federal Income Tax That’s why your Social Security and Medicare withholding can look disproportionately large next to your Box 1 wages. You’re saving on income tax, not on payroll tax.
Employer Contributions Are the Exception
Employer contributions to your 403(b), whether matching funds or non-elective contributions, work differently. These amounts are excluded from wages for FICA purposes. Your employer owes no Social Security or Medicare tax on them, and neither do you. They also don’t appear in Box 1 and create no current income tax for you.
The FICA exclusion on employer contributions is permanent, not a postponement. When you eventually withdraw those funds in retirement, you’ll owe federal income tax on the money because it was never taxed as income, but no Social Security or Medicare tax applies. The “deferred” in tax-deferred retirement savings refers to income tax, not payroll tax.
FICA Rates, the Wage Base, and the Additional Medicare Tax
FICA has two pieces. Social Security (OASDI) is 6.2% on the employee side with a matching 6.2% from the employer,3GovInfo. 26 U.S. Code 3101 – Rate of Tax and it only applies up to the annual wage base. For 2026, that base is $184,500.4Social Security Administration. What Is the Current Maximum Amount of Taxable Earnings for Social Security? Once your cumulative FICA wages hit that ceiling, no more Social Security tax is withheld for the year. Medicare (Hospital Insurance) is 1.45% on each side with no wage cap, so every dollar of wages is subject to it.5Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates
Because your deferrals stay in the FICA wage base, a pre-tax 403(b) contribution doesn’t delay the moment you reach the Social Security cap. You hit it at the same point you would without the deferral.
A separate 0.9% Additional Medicare Tax applies to wages above certain thresholds: $200,000 for single filers and heads of household, $250,000 for married filing jointly, and $125,000 for married filing separately. Your employer withholds the surtax on wages above $200,000 in a calendar year regardless of your filing status.6Internal Revenue Service. Questions and Answers for the Additional Medicare Tax Your 403(b) deferrals count toward that $200,000 trigger because they remain part of your Medicare wages. A traditional pre-tax deferral won’t shield you from the surtax the way it shields you from regular income tax. Higher earners should expect a total Medicare rate of 2.35% on wages above the threshold.
Public School and Government Employees Without Social Security
Many 403(b) participants work for public schools or state and local government, and not all of these employees pay into Social Security. Coverage depends on whether your state has a Section 218 Agreement covering your position.7Social Security Administration. Section 218 Agreements These voluntary agreements between a state and the Social Security Administration cover positions rather than individuals, so your situation depends on whether your specific job category was included.
If your position isn’t covered under a Section 218 Agreement, you’re exempt from the 6.2% Social Security tax. You still owe the 1.45% Medicare tax (and the Additional Medicare Tax if your wages are high enough). Your 403(b) deferrals in that case increase your Medicare wages but not your Social Security wages, because there are no Social Security wages to report. This is common for teachers and school administrators in states that run their own pension systems outside Social Security.
What Happens When You Withdraw the Money
No FICA applies to any 403(b) distribution. This is true for both employee deferrals and employer contributions. On the employee side, the Social Security and Medicare tax was already collected when you earned the wages. On the employer side, the exclusion is permanent.
Federal income tax is where distributions get taxed. Withdrawals of traditional pre-tax contributions and all investment earnings are taxed as ordinary income, and the plan reports the taxable amount on Form 1099-R.8Internal 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 entirely free of federal income tax, which requires the Roth account to have been open for at least five tax years (counting the year of your first Roth contribution) and the distribution to occur after you reach age 59½, become disabled, or pass away.9Internal Revenue Service. Retirement Topics – Designated Roth Account
Early withdrawals before age 59½ can trigger a 10% additional tax on top of regular income tax unless an exception applies.10Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions That 10% is an income tax penalty, not a FICA charge. Regardless of your age or reason for taking money out, FICA will never apply to the distribution itself.