Definition: Federal Insurance Contributions Act Taxes or FICA taxes are most commonly referred to as payroll because the federal government requires that employers withhold these taxes from employees’ paychecks. Employers are also required to pay half of the FICA taxes. One half of the FICA tax is withheld from employees’ paychecks while the other half is paid by the employer. This creates less of a tax burden on the individual employees.
What Does FICA Taxes Mean?
FICA taxes are split into two main categories: social security taxes and medicare taxes. Social security is a program that was introduced in the 1930s. It provides retirement payments for qualified individuals. These payments are often called social security benefits. In order to qualify for social security benefits, you must meet certain age or physical requirements. You must also have paid into the social security system during your working lifetime. Social security taxes are paid on wages earned up to $113,700 as of 2013.
Medicare taxes are used to pay worker’s surviving families and disabled workers. These monthly payments are often called medicare benefits. Just like social security benefits, qualifications must be met to collect medicare benefits. Unlike social security taxes, medicare taxes are levied on all wages. There are no wages limits.
FICA tax rates are always changing depending on the demands for payments. Some years like 2011 FICA taxes were cut. Other years like 2013, FICA taxes were raised to help fund the social programs. In 2012 the overall FICA tax rate was 15.3%. This means the employer paid 7.65% of employee wages and the employees had 7.65% of their wages withheld from their paychecks. The employee portion of the FICA tax can be broken down into 6.2% social security taxes and 1.45% medicare taxes.