Federal Insurance Contributions Act (FICA)

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Definition of 'Federal Insurance Contributions Act (FICA)'

The Federal Insurance Contributions Act (FICA) is a United States federal law that establishes a system of social insurance. The law was enacted in 1935 as part of President Franklin D. Roosevelt's New Deal. FICA taxes are collected from employees and employers and are used to fund Social Security and Medicare.

FICA taxes are levied on wages, salaries, and other forms of compensation paid to employees. The tax rate is 12.4% of wages up to an annual limit, which is adjusted annually for inflation. The employer is responsible for paying half of the tax, and the employee is responsible for paying the other half.

Social Security is a federal program that provides retirement, disability, and survivor benefits to eligible workers and their families. Medicare is a federal health insurance program for people age 65 and older, people with disabilities, and people with end-stage renal disease.

FICA taxes are an important source of funding for Social Security and Medicare. The taxes help to ensure that these programs are financially sound and that they can continue to provide benefits to millions of Americans.

In addition to FICA taxes, employees and employers also pay federal income taxes, state income taxes, and local taxes. These taxes help to fund a variety of government programs, including education, public safety, and infrastructure.

The amount of taxes that an individual pays depends on their income, marital status, and filing status. Individuals can use the IRS's Tax Withholding Estimator to estimate how much federal income tax they will owe.

State and local taxes vary depending on the state and locality in which an individual lives. Individuals can contact their state and local tax authorities for more information about the taxes that they owe.

By understanding the different types of taxes that they owe, individuals can make sure that they are paying the correct amount of taxes and that they are not overpaying.

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