Medicare and Social Security are mandatory spending categories funded by payroll taxes known as FICA taxes (Federal Insurance Contributions Act taxes). These taxes are withheld directly from employees' paychecks. Specifically, the FICA taxes consist of:
- A 6.2% Social Security tax withheld up to a wage limit (e.g., $168,600 in 2024, $176,100 in 2025).
- A 1.45% Medicare tax withheld on all earned wages with no wage limit.
- Additionally, there is a 0.9% Medicare surtax on earnings above certain thresholds ($200,000 for single filers, $250,000 for joint filers).
Employers match these contributions as well, doubling the total FICA tax rate paid into Social Security and Medicare funds. These taxes fund retirement, disability, survivor benefits under Social Security, and healthcare under Medicare programs.
