Definition
FICA is a U.S. federal payroll tax that funds Social Security and Medicare programs. Both employers and employees contribute, with each paying 6.2% for Social Security (up to an annual wage cap) and 1.45% for Medicare, totaling 7.65% from both the employer and the employee. High earners pay an additional 0.9% Medicare tax on wages above a certain threshold.
Related Services
Payroll processing, HR compliance, benefits administration, tax withholding services, and accounting services.
Problem and Application
Employers must correctly calculate, withhold, and remit FICA taxes. Miscalculations can lead to IRS penalties, while failure to pay can result in tax liens or legal action. Employees rely on these contributions to qualify for future Social Security retirement and disability benefits, as well as Medicare healthcare.
Conclusion
FICA is a foundational component of the U.S. social safety net. Compliance with FICA tax obligations is critical for employers, and contributions directly impact individuals’ future eligibility for government benefits.
