What does FICA stand for?

FICA stands for the Federal Insurance Contribution Act. This legislation is crucial in the context of Social Security and Medicare taxes. FICA is responsible for establishing the framework under which taxes are collected to fund these social insurance programs.

Under FICA, employees and employers each contribute a specific percentage of wages to fund Social Security and Medicare benefits. The structure of FICA taxes ensures that individuals earn credits toward future benefits, making it a fundamental component of the social safety net in the United States.

Understanding FICA helps clarify how payroll deductions work and the role of these contributions in funding essential government programs. It distinguishes itself from other terms that might sound similar but do not accurately describe the primary functions of this specific set of taxes.