Federal Insurance Contributions Act (FICA) tax , a kind of payroll tax, is a United States employment tax imposed in an equal amount on employees and employers to fund federal programs for retirees, the disabled, and children of deceased workers. The FICA taxes support Social Security and Medicare. The Federal Insurance Contributions Act is codified as Chapter 21 of Subtitle C of the Internal Revenue Code ( through ). The Center on Budget and Policy Priorities states that three-fourths of taxpayers pay more in payroll taxes than they do in income taxes.Studies Shed New Light on Effects of Administration's Tax Cuts by David Kamin and Isaac Shapiro, Center on Budget and Policy Priorities, Revised September 13, 2004 The FICA tax is considered a regressive tax on income (with no standard deduction or personal exemption deduction) and is imposed (for the year 2006) only on the first $94,200 of gross wages. The tax is not imposed on investment income (such as interest and dividends).

Social Security benefits include old-age, survivors, and disability insurance or OASDI. Medicare is the hospital insurance portion.

For 2006, the employee's share of the Social Security portion of the tax is 6.2% of gross compensation (not to exceed $94,200 of compensation). This limit, known as the "FICA-wage-base", goes up each year based on average national wages and, in general, at a faster rate than the Consumer Price Index (CPI-U). The employee's share of the Medicare portion is 1.45% of wages with no limit. The employer is also liable for separate 6.2% and 1.45% Social Security and Medicare taxes, respectively, making the total Social Security tax 12.4% and the total Medicare tax 2.9% of wages.

If a worker starts a new job halfway through the year and has already earned the wage base limit for Social Security, the new employer is not allowed to stop withholding it until the wage base limit has been earned with them. There are some cases, such as a successor-predecessor transfer, in which the payments that have already been withheld can be counted toward the year-to-date total.

If a worker has overpaid toward Social Security by having more than one job or by having switched jobs during the year, that worker will get a refund when they file their Federal income tax return

See also

• FairTax
• Flat Tax
• Form W-2
• Income tax
• National Insurance - A similar tax in the United Kingdom
• NESARA
• Progressive tax
• Regressive tax
• Sales tax
• Value added tax

Notes