FICA
FICA represents the Government Protection Commitments Act. Employers and employees are required to contribute to two federal programs by this law: Medicare and Social Security. Workers and their families are eligible for retirement, disability, and survivor benefits from Social Security. Individuals over the age of 65 and those with certain disabilities can get health insurance through Medicare. Employees pay checks are subject to withholding of FICA taxes, and employers are also required to contribute.
The ongoing FICA charge rate is 7.65% of a worker’s gross wages. This includes 1.65% for Medicare and 6.2% for Social Security. Each employee’s employer must also make a matching contribution. However, there is a yearly wage base limit, which means that an employee ceases to pay the FICA portion of Social Security once their wages reach a certain threshold. In 2021, the pay base breaking point is $142,800.
Social Security and Medicare, vital safety net programs for American workers and retirees, are funded by FICA taxes. While FICA taxes may reduce employees’ take-home pay, they are also earning benefits for their retirement and healthcare needs in the future. Additionally, employers are obligated to contribute to these programs, and failing to do so could result in monetary penalties or legal action.