What is FICA Tax?
Definition FICA, the Federal Insurance Contributions Act, refers to the Social Security and Medicare taxes withheld from employees' paychecks and matched by employers. The Social Security portion applies up to an annual wage base, while the Medicare portion applies to all wages with an extra amount on high earners. Together these fund federal retirement and health programs.
FICA is a significant cost for both employers and employees, and correct withholding and matching are essential to payroll compliance.