What does FICA stand for? It stands for the Federal Insurance Contributions Act. FICA is the law passed in the United States requiring all employees to pay a percentage of their earnings towards the country’s Social Security and Medicare programs. That percentage is matched by the individual’s employer and paid into the same programs. In the case of typical salaried employees, the percentage is simply withheld from their wages by their employer, while self-employed individuals are responsible for paying both halves bundled into an equivalent tax themselves.
Commonly referred to as the singular FICA tax, it is actually a combination of two separate tax rates. Social Security and Medicare define FICA tax rate. To calculate, apply these percentages to your earnings:
Social Security Tax Rate (6.2%) + Medicare Tax Rate(1.45%) = FICA Tax Rate (7.65%)
The FICA definition includes annual revision of tax rates as well as a limit on taxable wages, also annually revisable. While there is no limit in place for Medicare contribution, there is a cap set on mandatory Social Security contribution. Since FICA tax is set as a percentage, it increases with an individual’s earnings.