What does FICA mean?
FICA refers to the Federal Insurance Contribution Act, which imposes a tax on both employees and employers to provide funding for Social Security and Medicare. Payment of the tax is split equally between the employee and employer.
For the 2013 tax year, the employee and the employer each pay 6.2 percent of gross compensation to fund Social Security on the first $113,700 of the employee's pay. There is no FICA tax for Social Security on compensation above the $113,700 threshold.
In addition, the employee and employer each pay 1.45 percent of gross compensation to fund Medicare. The Medicare portion of FICA is payable on all compensation earned without a threshold. This means that for the 2013 tax year the Internal Revenue Service receives 15.3 percent of gross compensation up to $113,700 and 2.9 percent of each dollar of gross compensation thereafter.
FICA applies only to regularly-employed individuals. Self-employed individuals fund Social Security and Medicare through the Self-Employment Contributions Act.