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If you generate retirement income from an investment portfolio, you will not pay FICA taxes such as Social Security and Medicare tax. However, you might owe a supplemental Medicare tax if you are a high earner. If you generate retirement income from working a job, running a business or otherwise earning income, you will pay the same FICA taxes on that money as you did pre-retirement. Here’s what you need to know. You can simplify the process by working with a professional, such as a financial advisor who specializes in tax situations.
What Are FICA Taxes?
The FICA tax, short for Federal Insurance Contributions Act tax, is a federal payroll tax levied on all forms of earned income. It is what’s known as a regressive flat tax, meaning that it applies the same fixed rate to all taxpayers and is structured such that high earners pay a lower effective rate the more they earn.
Unlike federal income tax, which goes into general revenues, FICA taxes are specifically earmarked for certain programs. Specifically, this tax pays for Social Security and Medicare.
You only pay FICA taxes on what’s called “earned income.” While the definition can get complex, broadly speaking, earned income is defined as any money that you received in exchange for work or effort. For most people, this tax applies to W-2 paychecks, 1099 contractor income, business income and other self-employment income. The self-employed pay double and for them this is categorized as the “self-employment tax.”
Do You Pay FICA Taxes on Investment Income?
For retirees, the nature of the FICA tax matters because of what it omits. As a payroll tax, FICA does not apply to investment income. You do not pay Medicare and Social Security taxes on the money your portfolio generates. That includes capital gains, interest payments and dividends.
Much of the reason for this is that you have already paid FICA taxes on this money. When you contribute to a pre-tax retirement account, such as a 401(k), the IRS still charges FICA taxes on that money. You only get to deduct those contributions from your federal income tax. If you contribute to a post-tax account, such as a Roth account or an ordinary portfolio, then you have again already paid FICA taxes on those contributions.
So, for most people, the answer is no. If you are a retiree who lives on the proceeds of your investments, you will not pay Medicare taxes in retirement.
The Net Investment Income Tax
But every rule has an exception, and the Net Investment Income Tax is the exception here.
In 2013, Congress passed a supplemental tax to help boost revenue for the Medicare program. This is known as the Net Investment Income Tax (NIIT). It is a 3.8% tax that applies only to investment income in households with a high enough total adjusted income for the year. For both 2025 and 2026, this tax applies to all households with a modified adjusted gross income above $200,000 for single filers, or $250,000 for those married and filing jointly.
This tax only applies to the portion of your MAGI generated by investments and only to earnings above the threshold. So, for example, say that you are a married couple with $275,000 in portfolio earnings. You would pay the NIIT on $25,000 (the amount of earnings above the cap).
Curious how much you’re paying in FICA taxes? Use our income tax calculator to estimate your Social Security and Medicare contributions alongside your overall tax bill.
Income Tax Calculator
Calculate your federal, state and local taxes for the 2025 tax year.
Your 2025 Total Income Taxes
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About This Calculator
Our income tax calculator calculates your federal, state and local taxes based on several key inputs: your household income, location, filing status and number of personal exemptions.
How Income Taxes Are Calculated
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First, we calculate your adjusted gross income (AGI) by taking your total household income and reducing it by certain items such as contributions to your 401(k).
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Next, from AGI we subtract exemptions and deductions (either itemized or standard) to get your taxable income. Exemptions can be claimed for each taxpayer.
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Based on your filing status, your taxable income is then applied to the tax brackets to calculate your federal income taxes owed for the year.
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Your location will determine whether you owe local and / or state taxes.
When Do We Update? - We check for any updates to the latest tax rates and regulations annually.
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Assumptions
Deductions
- "Other Pre-Tax Deductions" are not used to calculate state taxable income.
Credits
- The only federal credit automatically calculated is the Savers Credit, depending on your eligibility.
- We do not apply any refundable credits, like the Child Tax Credit or Earned Income Tax Credit (EITC).
- We do not apply state credits in our calculations.
Itemized Deductions
- If itemizing at the federal level, you may need to itemize at the state level too. Some states don't allow itemized deductions, which is accounted for in our calculations.
- When calculating the SALT deduction for itemized deductions, we use state and local taxes, and we assume your MAGI.
- We assume that there is no cap to itemized deductions, if a state allows them.
- We do not categorize itemized deductions (such as medical expenses or mortgage interest), which could be subject to specific caps per state.
Local Tax
- Depending on the state, we calculate local taxes at the city level or county level. We do not include local taxes on school districts, metro areas or combine county and city taxes.
- With the exception of NYC, Yonkers, and Portland/Multnomah County, we assume local taxes are a flat tax on either state taxable income or gross income.
Actual results may vary based on individual circumstances and changes in tax laws or IRS regulations. Estimates provided by this calculator do not guarantee income tax amounts or rates. Past performance is not indicative of future results.
SmartAsset.com does not provide legal, tax, accounting or financial advice (except for referring users to third-party advisers registered or chartered as fiduciaries ("Adviser(s)") with a regulatory body in the United States). Articles, opinions and tools are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual. Users should consult their accountant, tax advisor or legal professional to address their particular situation.
Do You Pay FICA Taxes on Earned Income?
Finally, retirement does not change the taxable status of earned income. If you do any work in retirement, for example, if you pick up a part-time job or continue to run a business, that income will be subject to FICA taxes as usual. Increasingly relevant, this will apply to any freelance or contractor-based income. So, for example, if you drive for Uber or rent a room on Airbnb, these will be considered earnings.
Bottom Line
Medicare taxes are part of FICA taxes, a flat-rate payroll tax levied on all earned income. This tax does not apply to investment income, so your retirement portfolio will not be subject to FICA taxes but it may be subject to the alternative Net Investment Income Tax if your income is high enough.
Medicare Tips
- A financial advisor can help you build a comprehensive retirement plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area. You can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- So you aren’t paying Medicare taxes in retirement, probably. What are the ins and outs of getting coverage under this program?
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