FICA

FICA stands for the Federal Insurance Contributions Act, a U.S. federal law that mandates payroll taxes to fund two major social programs: Social Security and Medicare. Employers and employees both contribute to FICA through payroll deductions, which provide benefits like retirement income, disability insurance, and healthcare coverage for those 65 and older or with qualifying conditions.

Key Facts

• Split Between Employee and Employer: Both employer and employee each pay 6.2% for Social Security and 1.45% for Medicare, totaling 7.65% each (combined 15.3%).
• Social Security Wage Base Limit: Social Security tax applies only to wages up to a certain limit ($160,200 in 2023; indexed annually).
• Additional Medicare Tax: Employees pay an extra 0.9% Medicare tax on wages above $200,000 (single filers), $250,000 (married filing jointly).
• Funds Social Programs: Social Security provides retirement, disability, and survivor benefits; Medicare funds healthcare for eligible seniors and disabled individuals.
• Reported on W-2: Employers report withheld FICA taxes on Form W-2, which employees use when filing income tax returns.
• Paid Through Payroll Withholding: Employers withhold FICA taxes from employee paychecks and match the amount as their contribution.
• Administration: Administered by the Social Security Administration and IRS.

1. What does FICA stand for?

Federal Insurance Contributions Act, the law requiring payroll taxes for Social Security and Medicare.

2. How much is FICA tax?

7.65% of wages from employees (6.2% Social Security + 1.45% Medicare), matched equally by employers.

3. Is there a wage limit for FICA?

Social Security tax applies only up to a wage limit ($160,200 in 2023); Medicare tax has no wage limit.

4. What is the Additional Medicare Tax?

An extra 0.9% tax on high earners' wages above certain thresholds.

5. Who pays FICA taxes?

Both employers and employees share the cost equally; self-employed people pay the full amount themselves via self-employment tax.