The Federal Insurance Contributions Act (FICA) is a federally-mandated payroll contribution that funds Social Security and Medicare. Whether you are an employee or an employer, you must contribute a set percentage of wages earned towards these programs.
FICA consists of two separate contributions: the Social Security portion and the Medicare portion. The Social Security portion comes to 6.2% of an employee's wages, up to a specific wage limit, which is adjusted annually. The Medicare portion comes to 1.45% of an employee's wages, with no wage limit. Employers are also required to contribute the same percentage of wages for their employees.
FICA contributions fund the Social Security program, which provides retirement, survivor, and disability benefits to eligible individuals. On the other hand, the Medicare program provides healthcare coverage for individuals over 65 and those with certain disabilities.
Who has to pay FICA?
Both employees and employers are required to pay FICA.
What percentage of wages are taken for FICA?
The Social Security portion is 6.2% of employees' wages, and the Medicare portion is 1.45%.
Are there any wage limits for the FICA contributions?
The Social Security portion has a wage limit, which is adjusted annually. The Medicare portion does not have a wage limit.
How are the funds utilized?
The Social Security portion funds the Social Security program, which provides retirement, survivor, and disability benefits. The Medicare portion supports the Medicare program, which provides healthcare coverage for individuals over 65 and those with certain disabilities.
Does FICA affect your Adjusted Gross Income (AGI)?
Receiving FICA benefits can affect your taxable income under certain circumstances, but paying into FICA does not affect your adjusted gross income. This is because the IRS does not consider FICA a tax — rather, it is a contribution towards an amount you intend to receive later.
Is FICA currently the only federal payroll contribution?
No, FICA is one of several federal payroll contributions. Others include Federal Income Tax withholding and Federal Unemployment Tax Act (FUTA).
Are FICA contributions optional?
No, FICA contributions are mandatory for all eligible employees and employers — failure to pay can result in penalties and fines.