FEDERAL INSURANCE CONTRIBUTIONS ACT (FICA)
Back to GlossaryDefinition
A federal payroll contribution from employees and employers to fund Social Security and Medicare.
Summary
FICA is a federal law that requires both employees and employers to contribute a percentage of wages to fund two major social programs: Social Security and Medicare. The employee portion is automatically deducted from paychecks, while employers must match this contribution. For 2024, employees pay 6.2% for Social Security (on wages up to $160,200) and 1.45% for Medicare (on all wages), for a total of 7.65%. Employers pay the same amounts, making the combined contribution 15.3% of wages.
Usage Context
Essential when studying payroll processing, employment law, tax obligations for businesses, personal finance planning, and understanding the funding mechanism for social insurance programs.
Common Confusions
- Thinking FICA is the same as income tax
- Not understanding that employers also contribute an equal amount
- Believing FICA taxes are optional or voluntary
- Confusing FICA with unemployment insurance (FUTA/SUTA)
- Not knowing there's a wage cap for Social Security but not Medicare
