FICA Tax

FICA tax refers to the combined U.S. payroll tax that funds the Social Security and Medicare programs, named after the Federal Insurance Contributions Act that established it. FICA tax is withheld directly from an employee's wages by their employer and is also matched by the employer in an equal amount, meaning both the employee and the employer contribute to funding these federal programs. The FICA tax consists of two separate components: a Social Security portion, which funds retirement, disability, and survivor benefits, and is subject to an annual wage base limit above which no additional Social Security tax is owed, and a Medicare portion, which funds the federal health insurance program primarily for individuals aged 65 and older, and applies to all wages without a cap. Higher earners are also subject to an additional Medicare tax above certain income thresholds. Employers are responsible for accurately calculating, withholding, and remitting FICA tax on behalf of their employees, along with paying the employer's matching share, and for reporting these amounts on quarterly and annual tax filings. Because FICA tax calculations depend on current wage base limits and rates that can change, payroll systems typically need to stay updated to ensure ongoing compliance with these federal requirements.