What is the Federal Insurance Contributions Act in accounting?
Federal Insurance Contributions Act
The Federal Insurance Contributions Act (FICA) is:
- legislation that provides for and administers social insurance (retirement, survivor’s, and disability insurance) and elderly medical assistance (Medicare),
- a payroll tax, and
- financed by employee and employer contributions based on a prescribed percentage of income up to a specified amount.
The federal government responded to the need for old-age support by creating Federal Old-Age, Survivors, and Disability Insurance (OASDI), a national program of social insurance provided for in the Social Security Act of 1935. The program’s objective was to cover all gainfully employed persons, including the self-employed, and excluding certain groups, such as persons employed by the U.S. government. Recent legislation has added all new employees of the U.S. government to FICA coverage.