What is the Federal Insurance Contributions Act?
In accordance with the Federal Insurance Contributions Act (FICA), a 1935 U.S. law that also mandates employers to make matching contributions, a payroll tax must be withheld from employees’ paychecks. The money earned is used to pay for Medicare and Social Security.
In order to be able to rely on earned financial and health benefits in their later years, the act’s original objective called for working people to contribute a certain amount of each paycheck they received during their working years to Social Security (and eventually Medicare).
Federal Insurance Contributions Act Tax
Wage earners must contribute 6.2% of their salary ($160,200 in 2023) or less to Social Security. 6.2% is also paid on their behalf by their employers. The Social Security tax rate is thus 12.4%. For the purposes of Social Security, any income over $147,000 ($160,200 in 2023) is not taxed. On an income of $200,000, individuals are required to pay the Medicare rate of 1.4 %. They pay an additional 0.9% Medicare tax on any income over that. Employers are required to match the 1.45% rate, but not the 0.9% rate.
What is the Employee State Insurance Act?
Registered participants in the program are entitled to medical treatment for themselves and their families, financial assistance in the event of unemployment, and, in the case of female participants, maternity benefits. In the event of a disability or death due to employment, there are provisions for a disablement benefit and a family pension.
Also, See: Federal Unemployment Tax Act (FUTA)