what is fica tax

FICA stands for Federal Insurance Contributions Act, which is a U.S. federal payroll tax that both employees and employers are responsible for paying to fund Social Security and Medicare programs. The total FICA tax is split between the employer and employee, 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 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 to Social Security tax and 1.45% going to Medicare tax. The employer matches these percentages for a total of 15.3% . The OASDI portion of the tax is imposed on earned income only up to a cap annually set by Congress ($160,200 in 2023) . FICA helps fund both Social Security and Medicare programs, which provide benefits for retirees, the disabled, and children.