FICA-taxable compensation covers nearly every form of pay you receive for working: salary, hourly wages, overtime, commissions, bonuses, tips, most non-cash fringe benefits, severance, and even the money you defer into a 401(k). Social Security tax of 6.2% applies to the first $184,500 you earn in 2026; Medicare’s 1.45% applies to every dollar, with an extra 0.9% once wages cross $200,000.1Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates A smaller set of items, mostly health-related benefits and a few statutory carve-outs, stays outside FICA entirely. Knowing which is which affects your take-home pay now and your Social Security earnings record later.
Cash Pay Is Always In
Salaries, hourly wages, overtime, commissions, performance bonuses, and sign-on payments are FICA-taxable from the first dollar.1Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates If your employer pays you money for doing your job, both the 6.2% Social Security and 1.45% Medicare withholding apply, and your employer matches both.
Cash tips work the same way with one reporting wrinkle. Once your tips from a single employer reach $20 in a calendar month, you have to report the total to that employer so they can withhold FICA.2Internal Revenue Service. Tip Recordkeeping and Reporting Tips below that monthly threshold don’t trigger the reporting rule, but the income is still taxable on your return. The new income tax deduction for qualified tips (up to $25,000) reduces income tax only; your tips still face FICA withholding and still build your Social Security earnings record.3Internal Revenue Service. What the No Tax on Tips Deduction Means for You
Sick Pay and Disability Payments
Short-term sick pay is FICA-taxable whether it comes from your employer or a third-party insurer. The dividing line is time off, not the source of the check. Payments made after you have been off work for more than six full calendar months are no longer subject to FICA.4Internal Revenue Service. 2026 Publication 15-A People on extended disability leave sometimes assume withholding stopped the day they left work. It didn’t; it stops at the six-month mark.
Non-Cash Pay That Still Counts
Compensation delivered as a perk can still be FICA wages. The most common example is personal use of a company vehicle: your employer values that personal use using IRS methods and adds it to your taxable wages on your W-2.
Group-term life insurance is another place hidden FICA hides. Employer-paid coverage up to $50,000 is tax-free. Coverage above $50,000 generates imputed income under IRS premium tables, and that imputed amount is subject to both Social Security and Medicare taxes.5Internal Revenue Service. Group-Term Life Insurance On a $150,000 policy, you pay FICA on the imputed cost of the $100,000 above the threshold even though no cash hits your paycheck.
Employer-provided educational assistance is excluded from FICA wages up to $5,250 per year. Anything above that in a calendar year is treated as taxable compensation.6Internal Revenue Service. Updates to Frequently Asked Questions About Educational Assistance Programs
De minimis perks (occasional snacks, coffee, a company picnic, infrequent event tickets) stay outside FICA wages because they’re too small and infrequent to track.7Internal Revenue Service. Publication 15-B (2026), Employer’s Tax Guide to Fringe Benefits The word doing the work is “occasional.” Season tickets, regular use of a company apartment, and country club memberships aren’t de minimis no matter how the perk is labeled.
401(k) and Other Retirement Deferrals
Here is where the tax treatment splits in a way that surprises heavy savers. When you defer salary into a 401(k), 403(b), or similar plan, those contributions reduce your federal income tax for the year. They do not reduce your FICA wages. The tax code treats elective deferrals as wages for Social Security and Medicare at the time you perform the work.8Office of the Law Revision Counsel. 26 USC 3121 – Definitions
If you earn $100,000 in 2026 and defer $24,500 into your 401(k) (the elective deferral limit for the year), income tax withholding is figured on $75,500 while FICA withholding is figured on the full $100,000.9Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026 That’s how your retirement savings still build your Social Security earnings record.
Severance and Back Pay
Severance is FICA-taxable. The Supreme Court settled the point in United States v. Quality Stores, Inc., holding that severance payments are wages for FICA because they arise from the employment relationship.10Justia Law. United States v. Quality Stores, Inc., 572 US 141 (2014) Expect withholding on the full amount.
Back pay follows a split rule. For income tax, it’s taxed in the year paid. For Social Security purposes, back pay awarded under a federal statute (such as the Fair Labor Standards Act or an age discrimination claim) can be credited to your earnings record in the years the wages should have been paid, but only if the employer or employee notifies the Social Security Administration through the special back pay reporting process.11Internal Revenue Service. Publication 957, Reporting Back Pay and Special Wage Payments to the Social Security Administration Without that report, the whole award sits in the year paid, which can distort your record and your eventual benefit calculation.
Compensation Excluded From FICA
A short list of items stays outside FICA wages for specific policy reasons.
Health Coverage and Cafeteria Plan Benefits
Employer-paid premiums for health, dental, and vision insurance are excluded from FICA wages.12Internal Revenue Service. Employee Benefits Your own premium contributions are also excluded when they run through a cafeteria plan under Section 125, because those salary reductions aren’t treated as wages for FICA.13Internal Revenue Service. FAQs for Government Entities Regarding Cafeteria Plans Health Savings Account contributions made through a cafeteria plan are excluded as well. For 2026, HSA contribution limits are $4,400 for self-only coverage and $8,750 for family coverage.14Internal Revenue Service. Notice 26-05, 2026 HSA Limits Dependent care benefits paid through a cafeteria plan generally get the same treatment.
Workers’ Compensation
Payments under a workers’ compensation law for a job-related injury are excluded from FICA wages by statute.8Office of the Law Revision Counsel. 26 USC 3121 – Definitions You keep the full amount with no Social Security or Medicare withholding.
Disaster Relief Payments
Qualified disaster relief payments are excluded by statute; the law says they are not treated as wages or self-employment income.15Office of the Law Revision Counsel. 26 USC 139 – Disaster Relief Payments
Moving Expense Reimbursements (2026)
Under the Tax Cuts and Jobs Act, employer moving expense reimbursements were treated as taxable wages from 2018 through 2025, with an exception for active-duty military. That provision expired at the end of 2025. For 2026, qualified moving expense reimbursements are again excludable and not subject to FICA.16United States Congress. Expiring Provisions in the Tax Cuts and Jobs Act If you relocated in 2026 and your employer reimbursed you, the qualified portion should not appear in FICA wages on your W-2.
Students Working for Their School
If you’re enrolled and regularly attending classes at a school, college, or university and you work for that same institution, your wages are exempt from FICA. The exemption depends on your primary relationship with the school being that of a student, not an employee.17eCFR. 26 CFR 31.3121(b)(10)-2 – Services Performed by Certain Students Pay amount and job type don’t matter; enrollment and attendance do.
Children Working for a Parent
Wages paid to a child under 18 who works for a parent’s sole proprietorship (or a partnership in which both partners are the child’s parents) are exempt from Social Security and Medicare taxes. The exemption extends to age 21 for domestic work in the parent’s home. It does not apply if the family business is a corporation or a partnership with any non-parent partner.18Internal Revenue Service. Family Employees
The 2026 Wage Cap and the Additional Medicare Tax
Social Security tax applies only to the first $184,500 of wages in 2026. Once your year-to-date pay reaches that number with a single employer, the 6.2% withholding stops for both you and that employer. At the cap you’ll have paid $11,439 in Social Security tax, matched by your employer.19Social Security Administration. Contribution and Benefit Base
Medicare has no wage cap. The standard 1.45% applies to every dollar.1Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates An Additional Medicare Tax of 0.9% applies once wages exceed $200,000 in a year ($250,000 if married filing jointly, $125,000 if married filing separately).20Internal Revenue Service. Questions and Answers for the Additional Medicare Tax Employers withhold the extra 0.9% automatically once your pay with them crosses $200,000, regardless of filing status. You reconcile any difference when you file your return.
If you work more than one job, each employer withholds Social Security independently. When combined wages from two or more employers pass $184,500, you’ll have too much Social Security tax withheld. You reclaim the excess as a credit on your Form 1040.21Internal Revenue Service. Topic No. 608, Excess Social Security and RRTA Tax Withheld Married couples filing jointly each calculate the excess separately; you can’t combine wages with a spouse to claim one credit.
If You’re Self-Employed
Self-employment income isn’t subject to FICA in the employer withholding sense, but the equivalent tax still applies under the Self-Employment Contributions Act. The combined SECA rate is 15.3% (12.4% Social Security plus 2.9% Medicare) on your net self-employment earnings, with the same $184,500 Social Security cap and the same Additional Medicare Tax thresholds as wages.22Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes) If you have both W-2 wages and self-employment income, your W-2 wages count first toward the cap, reducing the self-employment income subject to the 12.4% Social Security portion.