Understanding FICA Tax

FICA stands for the Federal Insurance Contributions Act. This tax is automatically taken out of each paycheck to fund two important federal programs: Social Security and Medicare.

Social Security provides income to people after they retire or if they become disabled. Medicare helps cover healthcare costs for people age 65 and older or those with certain disabilities.

Every time you get paid, a small percentage of your wages goes toward these programs. Your employer also contributes an equal amount on your behalf.

In most cases, you’ll see these taxes labeled as Social Security and Medicare on your pay stub. The Social Security portion is 6.2% of your earnings, and the Medicare portion is 1.45%. Together, these make up your FICA tax.

FICA taxes are important because they help ensure you’ll have income and healthcare coverage later in life if you qualify for these programs. In other words, you’re contributing now to benefits you may rely on in the future.