As long as you continue to work (whether receiving a Social Security check or not), you will pay the FICA tax on your earnings. There is a taxable limit each year, above which you don’t pay the FICA tax. This year that limit is 127,200. The tax is named the Federal Insurance Contribution Act and funds the Social Security programs that pay benefits to the retired, disabled, and children. It is a tax on wages, so you will always pay it if you have wages or self-employment below limit in the year.
Self-employed people pay the tax when they file their yearly income tax return. The self-employed pay both the employee and the employer contributions, but tax law permits them to deduct half of the self-employment tax as a business tax. They pay the tax on their net earnings.
One important rule to remember is that if you pay the FICA tax on wages after you started receiving benefits, we may be able to use those additional years to recalculate your Social Security benefit. How does that work?
When we figure your benefit we use the highest thirty-five years of FICA-covered earnings on your record. Once we figure the benefit and begin to pay you, if you work and have additional earnings we must examine your work history to see if your most recent year of earnings is higher than the lowest of the thirty-five years we used (after indexing). We pay a one time check to catch you up to the new rate and the rate is increased effective with the January after you earned the money.
Sometimes your additional earnings can cause a small increase in your benefit. One additional year usually doesn’t cause a large increase, but it adds up over time because you also receive Cost of Living increases when the cost of living increases on top of additional years used in the computation. If you did not have 35 years of earnings when you started benefits, each additional year of earnings can replace a year of zero earnings until you have thirty-five years.
So, the benefit of continuing to pay the FICA may be an increase in your Social Security benefit amount.