Comprehensive Guide to the Federal Insurance Contributions Act (FICA) Tax
Definition & Meaning
The Federal Insurance Contributions Act (FICA) Tax is a federal payroll tax imposed on both employees and employers. This tax funds Social Security and Medicare programs, which provide essential benefits to retirees, people with disabilities, and children of deceased workers. FICA is often referred to as the social security tax, and it plays a crucial role in ensuring that these programs remain financially viable for future generations.
Legal Use & context
FICA tax is primarily used in the context of employment law and tax law. It is relevant for employers, employees, and tax professionals. Understanding FICA is important for managing payroll and ensuring compliance with federal tax regulations. Users can benefit from legal forms and templates that help them calculate and report FICA contributions accurately.
Real-world examples
Here are a couple of examples of abatement:
For example, if an employee earns $50,000 in a year, both the employee and employer will contribute $3,100 to Social Security ($50,000 x 6.2%) and $725 to Medicare ($50,000 x 1.45%).
(Hypothetical example) If an employee earns $200,000, they will pay $12,400 for Social Security (capped at the wage limit) and $2,900 for Medicare, plus an additional $900 for the extra Medicare tax due to their high income.
Relevant laws & statutes
The primary law governing FICA is the Federal Insurance Contributions Act, codified in Title 26 of the United States Code. Key sections include:
- 26 U.S.C. § 3101 - Imposes the tax on employees.
- 26 U.S.C. § 3111 - Imposes the tax on employers.
- 26 U.S.C. § 3121 - Defines wages subject to FICA tax.