FICA
Federal Insurance Contributions Act taxes fund Social Security and Medicare.
FICA is the federal law requiring employers and employees to each contribute to Social Security (6.2% on wages up to $168,600 in 2024) and Medicare (1.45% on all wages, plus 0.9% additional Medicare tax on wages over $200,000). Self-employed individuals pay both the employer and employee portions, known as self-employment tax.
Example
A W-2 employee earning $100,000 sees $7,650 deducted from paychecks for FICA, while the employer pays an additional $7,650, for a combined $15,300 in FICA taxes.
Why It Matters for Your Business
FICA represents a significant cost for both employers and employees, and self-employed individuals effectively pay double, making it a major factor in tax planning.
Related Terms
More Taxes Terms
Adjusted Gross Income
Gross income minus specific deductions like retirement contributions.
Tax Audit
An examination of tax returns by the IRS to verify accuracy.
Capital Gains
Profit from selling an asset for more than its purchase price.
Capital Loss
Loss from selling an asset for less than its purchase price.
Tax Deduction
An expense that reduces taxable income.
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