What is FICA Tax?

FICA stands for Federal Insurance Contributions Act and is a tax imposed on both employers and employees to finance the Social Security and Medicare programs. This tax is calculated based on the wages or salary that an employee earns. The tax is taken out of the paycheck automatically and is paid to the Internal Revenue Service (IRS). Employees are responsible for paying half of the FICA tax bill, while employers pay the other half.

How Does FICA Tax Work?

Each year, employers are required to deduct FICA tax, which is 7.65%, from their employees’ income. Of that 7.65%, 6.2% is allocated to Social Security and 1.45% is allocated to Medicare. There is also an additional 0.9% tax for employees who earn more than $200,000 per year, which goes directly to Medicare.

When Do I Pay FICA Tax?

Employees pay FICA tax when their employers deduct it from their wages or salaries each pay period. Employers also have to pay FICA tax on a quarterly basis, based on the wages and salaries of their employees. Employers are responsible for verifying the amounts of taxes withheld from employees’ wages and for submitting them to the IRS.

What Are the Benefits of FICA Tax?

FICA taxes are essential for the Social Security and Medicare programs. The Social Security program provides retirement benefits to individuals who are retired or disabled and provides survivor benefits to spouses and children of deceased employees. The Medicare program provides health insurance to elderly individuals who are 65 years or older.

Conclusion

FICA tax is a tax imposed on both employers and employees to fund the Social Security and Medicare programs. Employees are responsible for paying half of the FICA tax while employers pay the other half. FICA tax is deducted from an employee’s income each pay period and is used to fund the Social Security and Medicare programs, providing retirees, disabled individuals, and elderly people with benefits.