Federal Insurance Contributions Act (FICA)
The Federal Insurance Contributions Act (FICA) is a U.S. federal law that mandates a payroll tax to fund Social Security and Medicare programs.
FICA requires both employees and employers to contribute a percentage of wages to support these social insurance programs. Specifically, the tax is divided into two parts: one for Social Security and the other for Medicare. As of 2023, the Social Security tax rate is 6.2% on earnings up to a certain wage base limit, while the Medicare tax rate is 1.45% on all earnings, with an additional 0.9% for high earners.
For example, if an employee earns $50,000, they and their employer would each contribute $3,100 for Social Security (6.2% of $50,000) and $725 for Medicare (1.45% of $50,000).
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