In this video, I explain Federal Insurance Contribution Act FICA as covered on the CPA exam.
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FICA, or the Federal Insurance Contributions Act, is a United States federal law that mandates a payroll tax on both employees and employers to fund Social Security and Medicare programs. These are two critical components of the country's social safety net. Here's a breakdown:

Social Security: This program provides retirement, disability, and survivor benefits. The FICA tax for Social Security is shared equally between employers and employees. As of 2023, the tax rate is 6.2% of the employee's gross income up to a certain wage limit.

Medicare: This program offers health insurance primarily to individuals aged 65 and older, but also to some younger individuals with specific disabilities. The FICA tax for Medicare is also shared equally between employers and employees, with each paying 1.45% of the employee's gross wages. There is no wage limit for Medicare tax. Additionally, high-income earners are subject to an additional Medicare tax of 0.9% on income above certain thresholds.

The combined contribution to FICA taxes from both employees and employers helps fund these vital social programs, ensuring their availability and sustainability for current and future beneficiaries.



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