What is FICA?
FICA stands for Federal Insurance Contributions Act. The FICA tax is a federal payroll tax. FICA tax is used to fund social services like Medicare and Social Security. FICA taxes are regressive taxes in that the same rate applies to everyone. They are withheld from the majority of workers’ paychecks and do not have any applicable deductions or income exemptions.
The Federal Insurance Contributions Act requires employers to withhold social security and Medicare taxes from employee wages. Employers are also required to pay a portion of these taxes, which is equal to the amount employees pay. Certain employees are subject to 0.9% Medicare surtax if they earn over a certain threshold amount determined by their tax filing status.
FICA taxes provide benefits for retired people, people with disabilities and their beneficiaries. Social Security provides income to retirees, people with disabilities and families of retired, disabled or deceased workers. Medicare is a health insurance program ran by the federal government for people 65 years and older and people with specific conditions.
Learn about the social security wage base here, and see how Paycor can help with your payroll and tax compliance.