Accounting Dictionary


FICA means Federal Insurance Contributions Act.

The Federal Government thought it was unfair that some states had a retirement plan for its citizens and some did not. As part of the New Deal the Federal Insurance Contributions Act was passed to make sure all workers had some retirement income. The idea was that the employers and the employees would equally share the cost of providing the government mandated pensions which soon came to called Social Security. Currently employers deduct 7.65% of every worker’s salary and send that money to the Social Security Administration to provide Social Security and Medicare for older Americans. Employers match the money taken from employee’s paychecks with an equal check from the business’s bank account. If an employee made $100, the employer will deduct $7.65 from his pay and add an additional $7.65 in business funds. A total of $15.30 would be sent to the government for that employee. The payments are reduced to 1.45% matched by 1.45% by the employer when a worker’s pay reaches a certain ceiling amount. The ceiling amount changes yearly.

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