Social Security Tax (FICA)

By Entrepreneur Staff

Social Security Tax (FICA) Definition:

A tax paid by workers and employers on wages earned that supports the benefit programs under the Social Security System

The Federal Insurance Contributions Act, or FICA, provides for a federal system of old-age, survivors, disability and hospital insurance. The old-age, survivors and disability insurance part is financed by the Social Security tax. The hospital insurance part is financed by the Medicare tax.

FICA requires employers to match and pay the same amount of Social Security tax as the employee does. Charts and instructions for Social Security deductions come with your IRS payroll forms. Congress has mandated requirements for depositing FICA and withholding taxes, and failure to comply with these regulations subjects a business to substantial penalties.

More From Taxes

Alternative Minimum Tax (AMT)

A separate tax system designed to keep high-earning corporations and individuals from reducing their taxes to a level that the federal government considers too low

Employer Identification Number (EIN)

A 9-digit number obtained by a business with paid employees from the IRS. If you're a sole proprietorship, your EIN is your social security number.

Medicare Taxes

The tax you withhold from your employees' paychecks to cover the cost of Medicare expenses

Tax Deductions (aka Standard Business Tax Ded

The costs of doing business that are tax-deductible to the full extent of the law