FICA: Definition and Explanation
FICA, short for the Federal Insurance Contributions Act, is a mandatory U.S. payroll tax that helps fund Social Security and Medicare programs. This tax is shared between employers and employees, with each contributing a portion of the total amount owed.
Understanding How FICA Works
The revenue generated from FICA supports essential federal programs such as:
- Old-Age, Survivors, and Disability Insurance (OASDI)
- Hospital Insurance (HI), commonly known as Medicare, which provides health coverage for seniors and certain disabled individuals
By law, both the employer and the employee must contribute to FICA. However, it’s the employer’s responsibility to calculate and withhold the appropriate amounts from employees’ wages, and then submit both the withheld portion and their own matching contribution to the IRS.
Payroll platforms like Beyond can simplify FICA tax compliance by automating calculations and filings, reducing the risk of errors and helping businesses stay in line with federal regulations.