Federal Insurance Contributions Act


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Federal Insurance Contributions Act

Legislation in the United States that requires employees to contribute a certain percentage of their wages or salaries via payroll deductions to finance Medicare and Social Security. Employees are required to contribute 6.2% of each paycheck toward Social Security, up to a certain income limit. They are also required to pay 1.45% to pay for Medicare, with no income limit. Employers are required to make matching contributions for each employee. Under the Federal Insurance Contributions Act, employees do not actually receive this percentage of their wages or salaries. Proponents of the Act argue that that this allows employees to budget their taxes better while critics state that the tax is regressive. See also: FICA Tax.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

Federal Insurance Contributions Act (FICA).

The Federal Insurance Contribution Act (FICA) is the federal law that requires employers to withhold 6.2% from their employees' paychecks, up to an annual earnings cap.

Employers must match employee withholding and deposit the combined amount in designated government accounts.

These taxes provide a variety of benefits to qualifying workers and their families through the program known as Social Security. Retirement income is the largest benefit that FICA withholding supports, but the money also funds disability insurance and survivor benefits.

Under this act, an additional 1.45% is withheld, and matched by the employer, to pay for Medicare, which provides health insurance for qualifying disabled workers and people 65 and older. There's no earnings cap for this tax.

If you're self-employed, you pay FICA taxes as both employer and employee, or 15.3%.

Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.

FICA (Federal Insurance Contributions Act)

The law that provides for social security and Medicare benefits. This program is financed by payroll taxes imposed equally on the employer and the employee. See our Social Securty Wages and Earnings Base for the current wage base.
Copyright © 2008 H&R Block. All Rights Reserved. Reproduced with permission from H&R Block Glossary
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