The federal law which requires employers to withhold a portion of employee wages and pay them to the government trust fund which provides retirement benefits. An acronym for Federal Insurance Contributions Act. More commonly known as social security.
The Federal Insurance Contributions Act is the federal law that requires you to withhold two separate taxes from the wages you earn. It includes Social Security Tax and Medicare Tax at a flat percentage rate. The Social Security Tax is 6.2% rate of your wages, and the Medicare Tax is 1.45% of your wages. If you earn more than $200,000, you will also be taxed an additional 0.9% Medicare surtax.
You’re not the only one paying for FICA, however. Your employer is also matching the Social Security Tax of 6.2% and the Medicare tax of 1.45% of your wages. This is extremely important to understand if you are an independent contractor, as you will be responsible for paying on your wages earned, and matching that amount, as you are your own employer. In other words, you are responsible for paying the entire 12.4% Social Security tax, and 2.9% Medicare tax.