Social Security Tax (FICA)

Definition:

A tax paid by workers and employers on wages earned that supports the benefit programs under the Social Security System

The Federal Insurance Contributions Act, or FICA, provides for a federal system of old-age, survivors, disability, and hospital insurance. The Social Security tax finances the old-age, survivors, and disability insurance part. The Medicare tax finances the hospital insurance part.

FICA requires employers to match and pay the same amount of Social Security tax as the employee does. Charts and instructions for Social Security deductions come with your IRS payroll forms. Congress has mandated requirements for depositing FICA and withholding taxes, and failure to comply with these regulations subjects a business to substantial penalties.

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