Federal Insurance Contributions Act (FICA)
Summary Definition: Federal payroll taxes used to fund Social Security and Medicare benefits.
What is FICA?
The Federal Insurance Contributions Act (FICA) is a federal law that imposes a pair of payroll taxes on most employees and employers to help fund Social Security and Medicare benefits. It was created by the 1935 Social Security Act (SSA).
FICA taxes are split evenly between employers and employees at a rate of 15.3% of the employee’s gross wages. Social Security receives 6.20% of each half (or 12.4% of the total 15.3%), while the remaining 1.45% of each half (or 2.9% of the total 15.3%) goes to Medicare.
| Tax | Paid by Employee | Paid by Employer | Final Tax Rate |
|---|---|---|---|
| Social Security | 6.20% | 6.20% | 12.40% |
| Medicare | 1.45% | 1.45% | 2.90% |
| FICA Taxes (total) | 7.65% | 7.65% | 15.30% |
For example, if an employee’s gross monthly wages are $2,000, then $306 is owed to the IRS (2,000 x 15.3%) under today’s FICA tax rates. Since FICA taxes are a shared responsibility, the employee pays half of that total ($153) while their employer pays the other half. Of that total amount, $248 (2000 x 12.4%) goes to Social Security and $58 (2000 x 2.9%) goes to Medicare.
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