what is fica

FICA stands for Federal Insurance Contributions Act, which is a U.S. federal payroll tax. It is deducted from each paycheck and is directed towards both employees and employers to fund Social Security and Medicare programs. The FICA tax applies to earned income only and is not imposed on investment income such as rental income, interest, or dividends. The tax is split between the employer and employee, with each party paying half. The Social Security portion of FICA is sometimes labeled as “OSADI,” which is short for “old-age, survivors, and disability insurance” tax, while the hospital insurance part is often noted as a Medicare tax. The FICA tax rate is 15.3% of earnings, with 6.2% going towards Social Security and 1.45% going towards Medicare. 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 workers pay FICA taxes, they earn credits for Social Security benefits. FICA helps fund both Social Security and Medicare programs, which provide benefits for retirees, the disabled, and children.