FICA is composed of which two separate taxes?

FICA, or the Federal Insurance Contributions Act, is comprised of two key components that fund important social insurance programs: Old-Age, Survivors, and Disability Insurance (OASDI) and Hospital Insurance (HI). OASDI is often referred to as Social Security, which provides benefits for retirees, disabled individuals, and survivors of deceased workers. HI is the portion that funds Medicare, specifically for hospital insurance, which assists with costs related to medical care for individuals aged 65 and older or for certain younger individuals with disabilities.

The correct understanding of FICA is crucial because it outlines how payroll taxes are allocated and emphasizes the importance of these contributions in supporting essential government programs that many citizens rely on. The distinction between OASDI and HI is important, as they serve different functions within the broader framework of social safety nets.

Recognizing that FICA is specifically composed of OASDI and HI provides clarity on the structure of payroll taxes and helps in understanding payroll processing and reporting obligations for employers. This knowledge is essential for anyone involved in payroll management, ensuring compliance with federal regulations while supporting the financial stability of social insurance programs.