what are fica taxes

FICA stands for Federal Insurance Contributions Act, which is a U.S. federal payroll tax that is deducted from each paycheck. It is a combination of Social Security and Medicare taxes that equal 15.3% of an employees earnings, with each party paying half. The FICA tax applies to earned income only and is not imposed on investment income such as rental income, interest, or dividends. The Hospital Insurance (HI) portion of FICA, which funds Medicare Part A hospital benefits, applies to all earned income, while the OASDI portion of the tax is imposed on earned income only up to a cap annually set by Congress ($160,200 in 2023) . As an employee works and pays FICA taxes, they earn credits for Social Security benefits. The FICA tax is mandatory and is generally considered to be a regressive tax since it is subject to neither the standard deduction nor any personal exemption.