What does FICA stand for?

FICA stands for the Federal Insurance Contributions Act. This act was established to provide for the federal system of old-age, survivors, and disability insurance (OASDI), commonly known as Social Security, as well as Medicare. Under FICA, both employees and employers contribute a percentage of wages to fund these programs.

The term encompasses both the Social Security tax and the Medicare tax, which are critical for providing financial support to retirees and health care for those over 65, along with certain disabled individuals. Understanding FICA is essential for payroll professionals as it impacts wage calculations and compliance with federal tax regulations.

The other options may sound plausible, but they do not accurately represent the intent and scope of the act. For instance, the Federally Integrated Contributions Act and the Federal Income Contribution Act do not exist in U.S. tax policy, and the phrase "Federal Income and Contributions Act" is misleading as it fails to capture the specifics of the Social Security and Medicare components. Consequently, recognizing FICA as the Federal Insurance Contributions Act is key for understanding its role in the payroll system and the broader social safety net.