What are the two components of FICA taxes?

The two components of FICA taxes are Social Security tax and Medicare tax. FICA, which stands for the Federal Insurance Contributions Act, mandates that employers and employees contribute to these two federal programs, which provide benefits for retirees, disabled individuals, and survivors of deceased workers.

Social Security tax is collected to fund the Social Security program, which provides retirement, disability, and survivor benefits. Medicare tax is used to fund the Medicare program, which provides health insurance for individuals over the age of 65 and certain younger individuals with disabilities.

Understanding the purpose of these taxes is crucial for payroll accounting, as they are automatically withheld from employees' paychecks and matched by employers as part of their payroll tax obligations. This separation from income tax, health insurance premiums, and other types of taxes is essential because FICA taxes have specific regulations and purposes that directly support social welfare programs for the American workforce.