what is the federal insurance contributions act fica 
the federal insurance contributions act fica of 1935 established a payroll tax on u s wage earners paychecks and called for matching contributions from employers 1 the revenues from this tax finance the nation s social security program and medicare program 2from the beginning the idea behind the act was that working people would contribute a certain amount of each of their paychecks throughout their working years to fund social security and later medicare so that later in life they d be able to count on earned financial and health benefits the self employment contributions act seca of 1954 requires the self employed to pay taxes on their net earnings to help fund social security and later medicare once it was started 34understanding ficain 1935 the united states congress passed the federal insurance contributions act known as fica its purpose was to collect contributions to fund the new social security program established by the administration of president franklin d roosevelt in the same year roosevelt believed that the money collected from all working americans through fica would belong directly to them he didn t want the financial benefits for their retirement disability or death to depend on federal revenue he feared that politicians would take and use the money for their own purposes 5in 1965 the payroll tax to fund health care benefits was added when medicare was signed into law by president lyndon b johnson 6fica contributions are mandatory although the rate can be set annually it has remained mostly stable since 1990 the limit changes each year based on the national average wage index 78according to the internal revenue service irs fica taxes are made up of old age survivors and disability insurance taxes social security plus the hospital insurance tax medicare each applies different rates 9there s a maximum wage base for social security taxes on earnings above which no tax is levied the wage base is set at 160 200 for 2023 and 168 600 for 2024 there is no wage base limit for medicare taxes 10for 2023 and 2024 the total social security tax rate of 12 4 is split between employee and employer the employee pays 6 2 and the employer pays the other 6 2 the total medicare tax rate of 2 9 is also split between employee and employer the employee pays 1 45 and the employer pays 1 45 9employees pay an additional 0 9 medicare tax on wages over a threshold amount for 2023 and 2024 that amount is 200 000 for individuals 250 000 for married couples filing jointly 11 so depending on their wages an employee s total medicare tax could reach 2 35 1 45 plus 0 9 employers are not required to match the additional medicare tax 9the self employed contributions act seca under seca the self employed pay both the employee and employer portions of the social security and medicare taxes for example as a sole proprietor you d be responsible for paying 12 4 of your income toward social security and 2 9 toward medicare 12moreover you d pay the additional medicare tax of 0 9 on self employment income over the threshold amount 11though they pay more than wage earners self employed individuals do get a tax break they can deduct the amount that represents the employer s share half as a business expense 12fica and seca taxes do not fund supplemental security income ssi benefits even though that particular program is run by the social security administration ssa ssi benefits come out of general tax revenues 13