What does the Federal Insurance Contributions Act (FICA) levy taxes on?

The Federal Insurance Contributions Act (FICA) imposes taxes on the gross earnings of self-employed individuals. This tax is primarily used to fund Social Security and Medicare programs, which provide essential benefits to retirees and certain individuals with disabilities.

Self-employed individuals are subject to the same FICA tax rates as employees; however, they pay both the employee and employer portions of the tax because they are considered both. This means that self-employed persons must calculate and report their gross earnings when filing their taxes to ensure they pay the correct amounts due for social security and Medicare.

The other options do not represent the correct application of FICA. While public employees may pay into Social Security if their jobs are covered, FICA taxes are not specifically levied solely on their earnings. Similarly, independent contractors pay self-employment tax, which includes FICA taxes, but this is based on their gross income rather than net profits. Taxable benefits for corporate executives might be subject to different tax rules that do not fall under the standard provisions of FICA.