The term “FICA” stands for “Federal Insurance Contributions Act.” FICA taxes fund Social Security and Medicare.
The FICA equation for an employee is: 6.2% of gross wages are withheld from pay for Social Security, and 1.45% for Medicare. The 6.2% is assessed on wages up to the Social Security Wage Base cap for that year; for 2013, that cap is $113,700).
For an employee who makes less than $113,700, they’ll pay 7.65% in FICA taxes (6.2 + 1.45). Additionally, the employer puts in a matching contribution of 7.65%. Total contribution = 15.3% (7.65 + 7.65).
For self-employed taxpayers, FICA taxes are called self-employment tax. Self-employment tax is equal to 15.3% (the self-employed person is considered both employer and employee for FICA tax purposes and so pays 7.65% x 2) . Self-employment tax is accounted for on the self-employed person’s tax return.
For more tax terms, click on the Glossary link at the top of the page.