FEDERAL INSURANCE CONTRIBUTIONS ACT
Back to GlossaryDefinition
A federal payroll contribution from employees and employers to fund Social Security and Medicare.
Summary
The Federal Insurance Contributions Act (FICA) is a U.S. federal law that requires both employees and employers to pay taxes to fund Social Security and Medicare programs. FICA taxes are automatically deducted from your paycheck and matched by your employer. The current FICA tax rate is 15.3% total (7.65% paid by employee, 7.65% paid by employer), split between Social Security (12.4%) and Medicare (2.9%). These contributions create your eligibility for future Social Security retirement benefits and Medicare healthcare coverage.
Usage Context
Understanding FICA is essential when studying payroll accounting, employment law, tax preparation, personal finance planning, and Social Security benefits calculations.
Common Confusions
- Thinking FICA taxes are the same as federal income taxes
- Believing FICA taxes are refundable like income tax overpayments
- Confusing FICA with unemployment insurance taxes
- Not understanding that employers also pay FICA taxes
- Thinking self-employed individuals don't pay FICA (they pay SECA instead)
