Federal Insurance Contributions Act - FICA

Loading the player...

What is the 'Federal Insurance Contributions Act - FICA'

The Federal Insurance Contributions Act (FICA) is a U.S. law requiring a deduction from paychecks and income that goes toward the Social Security program and Medicare. Both employees and employers are responsible for sharing the FICA payments.

BREAKING DOWN 'Federal Insurance Contributions Act - FICA'

FICA stipulates that there is a maximum that can be allocated to Social Security, while there is no maximum on what can go toward Medicare. Once the maximum to Social Security is achieved, the contributor's FICA payment will not increase the Social Security portion but will continue to increase the contribution to Medicare. The amount of the FICA payment depends on the income of the contributor; the higher the income, the higher the FICA payment.

If FICA states, for example, that 12.4% of your salary goes toward Social Security and 2.9% goes toward Medicare, half of the payment is made by you and the other half by your employer. This means you pay 7.65% (6.2% and 1.45%) of your income, while your employer pays the other 7.65%. Self-employed people, on the other hand, must pay the full amount, but half - which would represent the employer's half - is a deductible business expense.

To learn more about FICA, read Why is there a cap on the Federal Insurance Contribution (FICA) tax?

RELATED TERMS
  1. IRS Publication 517 - Social Security ...

    A document published by the Internal Revenue Service that details ...
  2. Disability Insurance

    A program managed by the Social Security Administration that ...
  3. Social Security Act

    A law enacted by President Franklin D. Roosevelt in 1935 to create ...
  4. Social Security Benefits

    The monetary benefits received by retired workers who have paid ...
  5. Self Employed Contributions Act ...

    A form of taxes that self-employed business owners must pay based ...
  6. Disability Insurance Trust Fund

    An account within the Social Security Trust Fund used to pay ...
Related Articles
  1. Retirement

    Understanding Your FICA Payments

    The Federal Insurance Contributions Act is a U.S. law that requires a paycheck deduction be paid to Social Security and Medicare.
  2. Retirement

    Payroll Taxes: Picking Apart Your Paycheck

    Here's what gets deducted from your pay, what your employer pays and where your payroll taxes actually end up.
  3. Retirement

    Can the Market Affect Social Security Benefits?

    What you should know about the relationship between the stock market and your monthly Social Security check.
  4. Personal Finance

    Small Business Tax Obligations: Payroll Taxes

    Don't leave it up to your accountant - owners are ultimately responsible for fulfilling tax obligations.
  5. Retirement

    6 Benefits You're Required by Law to Offer Your Employees

    Learn about the benefits that a business must offer to employees, such as family and medical leave, as well as various forms of insurance coverage.
  6. Retirement

    Introduction to Social Security

    You've probably contributed to this fund, but will you reap the benefits? Find out here.
  7. Retirement

    When Do I Stop Paying Social Security Tax?

    Almost never, unless you belong to one of these special groups.
  8. Personal Finance

    When Should You Delay Enrolling in Medicare?

    On the surface Medicare doesn't look that pricey, but there are situations in which your finances and health might be better served by delaying enrollment.
  9. Retirement

    How Much Medicaid and Medicare Cost Americans

    Medicaid & Medicare cost Americans plenty out of their paychecks. But how much, really? And what does that money buy?
  10. Retirement

    Americans Are Living Longer, but Social Security Is Not Catching Up

    Find out how Social Security really works, why the system is in trouble and whether retirees are simply living too long for Social Security to remain viable.
RELATED FAQS
  1. How much of my income goes to Social Security taxes?

    Discover how much of your income goes to social security tax: what the rate is, what the limits are and what types of income ... Read Answer >>
  2. Why is there a cap on the Federal Insurance Contribution (FICA) tax?

    Find out the history behind the the controversial FICA cap on wages. Read Answer >>
  3. Are Cafeteria plans subject to FICA, ERISA or FUTA?

    Find out whether cafeteria plans are subject to ERISA, what they offer to employees and which benefits are subject to FICA ... Read Answer >>
  4. How is Social Security tax calculated?

    Find out how Social Security tax withholding is calculated, including the impact of the Medicare tax and the maximum taxable ... Read Answer >>
  5. Are the deferred earnings in a SIMPLE IRA subject to FICA taxes?

    While salary deferral contributions to a savings incentive match plan for employees of small employers (SIMPLE) IRAs and ... Read Answer >>
  6. Can I deduct Social Security and Medicare taxes paid on my 2015 tax return?

    I am 73 years old, retired, and receiving social security. I earned $2,025 in 2015 as a substitute teacher.  $126 in ... Read Answer >>
Hot Definitions
  1. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  2. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  3. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  4. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
  5. Weighted Average Life - WAL

    The average number of years for which each dollar of unpaid principal on a loan or mortgage remains outstanding. Once calculated, ...
  6. Real Rate Of Return

    The annual percentage return realized on an investment, which is adjusted for changes in prices due to inflation or other ...
Trading Center