No, you do not pay FICA on capital gains. Federal payroll taxes — the Social Security and Medicare taxes collected under FICA from employees and under SECA from the self-employed — apply only to wages and net earnings from self-employment. Profit from selling stock, real estate, or another capital asset is neither. High earners can still owe a separate 3.8% Net Investment Income Tax on those gains, but that is an income tax, not a payroll tax.
Why Payroll Taxes Skip Capital Gains
FICA taxes fund Social Security and Medicare, and the statute defines the base as “wages,” meaning remuneration for employment.1Office of the Law Revision Counsel. 26 USC 3121 – Definitions Selling an asset that has gone up in value is not payment for services, so the gain sits outside that definition.
The self-employment side reaches the same result through a more explicit route. SECA taxes “net earnings from self-employment,” and the statute expressly excludes any gain or loss from the sale or exchange of a capital asset from that calculation.2Office of the Law Revision Counsel. 26 USC 1402 – Definitions Whether you receive a W-2 or run your own business, the profit from selling an investment does not trigger Social Security or Medicare payroll tax.
What You Do Pay on a Capital Gain
Capital gains still face federal income tax. The rate depends on how long you held the asset.
Held One Year or Less
Short-term gains are taxed as ordinary income, added to your wages and other earnings and taxed at your regular bracket.3Internal Revenue Service. Topic No. 409, Capital Gains and Losses For 2026, the top ordinary rate is 37%, hitting single filers with taxable income above $640,600 and joint filers above $768,700.4Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 Even at the top rate, no FICA or SECA applies.
Held More Than One Year
Long-term gains qualify for preferential rates of 0%, 15%, or 20%, set by your taxable income and filing status.5Office of the Law Revision Counsel. 26 USC 1 – Tax Imposed, Section (h) Maximum Capital Gains Rate The 2026 brackets:
- 0% rate: taxable income up to $49,450 single or married filing separately; $98,900 joint; $66,200 head of household.
- 15% rate: above the 0% threshold up to $545,500 single; $613,700 joint; $579,600 head of household; $306,850 married filing separately.
- 20% rate: taxable income above the 15% ceiling.6Internal Revenue Service. Rev. Proc. 2025-32, 2026 Adjusted Items
Total taxable income, not the gain alone, determines the bracket. A large sale can push some of the profit itself into a higher tier.
The 3.8% Net Investment Income Tax
Higher-income taxpayers face a 3.8% Net Investment Income Tax (NIIT) on investment profits, capital gains included. This is not a payroll tax — it is not collected through FICA or SECA and does not fund Social Security — but it does help fund Medicare and often catches people who assumed their gain would only face the long-term capital gains rate.
The NIIT applies once your modified adjusted gross income crosses these thresholds:
- Single or head of household: $200,000
- Married filing jointly: $250,000
- Married filing separately: $125,0007Office of the Law Revision Counsel. 26 USC 1411 – Imposition of Tax
The 3.8% is applied to the smaller of two numbers: your total net investment income for the year, or the amount by which your modified AGI exceeds the threshold. Take a single filer with $180,000 in wages and $50,000 in capital gains: modified AGI is $230,000, which is $30,000 over the $200,000 line. The tax hits $30,000 (the lesser of the $50,000 in investment income and the $30,000 excess), producing $1,140 in additional tax.
Net investment income covers interest, dividends, capital gains, rental and royalty income, and income from passive business activities.8Internal Revenue Service. Questions and Answers on the Net Investment Income Tax Wages, self-employment income, income from a business you actively run, and Social Security benefits are not part of the NIIT base.
The thresholds are written into the statute and are not indexed for inflation, so the tax reaches more filers each year as incomes rise. You calculate and report the NIIT on Form 8960 with your annual return.
Don’t Confuse This With the Additional Medicare Tax
The 3.8% NIIT and the 0.9% Additional Medicare Tax came from the same legislation and share the same threshold amounts, but they cover opposite kinds of income. The Additional Medicare Tax applies only to wages and self-employment earnings above the threshold.9Internal Revenue Service. Topic No. 560, Additional Medicare Tax It does not reach capital gains, dividends, or other investment income.
The NIIT does the reverse: it applies only to investment income and does not touch wages or self-employment earnings.8Internal Revenue Service. Questions and Answers on the Net Investment Income Tax A high earner with substantial wages and substantial investment gains can owe both, but neither tax crosses into the other’s territory.
When Business Structure Blurs the Line
The clean split between gains and earnings can get muddy inside a business. A few situations come up often enough to flag.
S Corporation Owners
An S corporation shareholder who works in the business must draw a reasonable salary, which is subject to FICA. Profit distributed above that salary is not. The IRS and courts have pushed back against owners who set the salary artificially low to move compensation into distributions, treating what should have been wages as wages for employment tax purposes.10Internal Revenue Service. S Corporation Employees, Shareholders and Corporate Officers A true capital gain on selling the corporation’s stock or assets, though, stays a capital gain and stays outside FICA.
Active Limited Partners
Partnership tax law generally lets a limited partner exclude their share of partnership income from self-employment tax, but that exclusion is meant for passive investors.2Office of the Law Revision Counsel. 26 USC 1402 – Definitions In Soroban Capital Partners v. Commissioner, the Tax Court held that limited partners who actively participate in the business cannot use the exclusion, and applied a functional test based on the work they do rather than their formal title. Capital gains passed through from the partnership still fall outside SECA under the statutory carveout for gains on capital assets.
Securities Traders
Someone who trades securities as a business is in an unusual spot: gains and losses from trading are not subject to self-employment tax, even if the trader makes a mark-to-market election that converts those results to ordinary income for income tax purposes.11Internal Revenue Service. Topic No. 429, Traders in Securities
If You’re Already Collecting Social Security
Because capital gains are not earnings, they will not add to your Social Security work record or increase your future benefit. They can, however, raise the share of the benefits you already receive that gets taxed. The IRS uses “combined income” — your adjusted gross income, plus nontaxable interest, plus half of your Social Security benefits — to decide how much of the benefit is taxable, and capital gains flow into AGI.12Internal Revenue Service. IRS Reminds Taxpayers Their Social Security Benefits May Be Taxable
For single filers, combined income between $25,000 and $34,000 makes up to 50% of benefits taxable, and above $34,000 up to 85%. For joint filers, the corresponding thresholds are $32,000 and $44,000. A one-time large sale, like liquidating a portfolio or selling property, can lift a retiree well above those lines for the year even when the rest of their income is modest.