What type of payroll tax is the FICA tax considered?

The FICA tax, which stands for the Federal Insurance Contributions Act tax, is categorized as a federal payroll tax. This tax is specifically designated to fund Social Security and Medicare programs, which provide benefits for retirees and certain individuals with disabilities, as well as health insurance for those aged 65 and older.

FICA tax is collected from employees' paychecks and requires matching contributions from employers, distinguishing it from income taxes, which are based on an individual’s total earnings and liabilities. While it is withheld from wages, it operates separately from state payroll taxes, which vary significantly from one state to another and are not used exclusively for Social Security and Medicare.

Understanding the classification of the FICA tax as a federal payroll tax is crucial for payroll professionals, as it informs compliance with federal regulations and ensures the appropriate amounts are deducted and reported.