FICA
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A federal payroll contribution from employees and employers to fund Social Security and Medicare.
Summary
FICA (Federal Insurance Contributions Act) is a U.S. federal payroll tax that funds Social Security and Medicare programs. Both employees and employers contribute equal amounts - currently 7.65% each (6.2% for Social Security + 1.45% for Medicare) of an employee's wages up to certain income limits. This means a total of 15.3% of wages goes toward these programs, split equally between worker and employer.
Usage Context
Essential when studying payroll processing, employee compensation, tax withholding calculations, and understanding the difference between gross and net pay. Critical for personal finance literacy and employment-related topics.
Common Confusions
- Thinking FICA is refundable like income tax withholding
- Confusing FICA with federal income tax
- Not understanding that employers also contribute matching amounts
- Believing FICA only applies to full-time employees
- Thinking Social Security and Medicare taxes are separate from FICA
