The Federal Insurance Contributions Act (FICA) tax () is a United States federal payroll (or employment) tax imposed on both employees and employers to fund Social Security and Medicare—federal programs that provide benefits for retirees, disabled people, and children of deceased workers.
The tax also provides funds to the health care system for institutions that provide healthcare for workers that do not have health insurance and cannot afford healthcare treatment. Because the tax falls exclusively on wages and not on physical or financial capital, payroll taxes may lead to underinvestment in human capital such as higher education. Social Security benefits include old-age, survivors, and disability insurance (OASDI); Medicare provides hospital insurance benefits for the elderly. The amount that one pays in payroll taxes throughout one’s working career is associated indirectly with the social security benefits annuity that one receives as a retiree. Consequently, Kevin Hassett wrote that FICA is not a tax because its collection is directly tied to benefits that one is entitled to collect later in life. The United States Supreme Court decided in Flemming v. Nestor (1960) that no one has an accrued property right to benefits from Social Security. The Federal Insurance Contributions Act is currently codified at Title 26, Subtitle C, Chapter 21 of the United States Code.
In the United States, the term payroll tax usually refers to the FICA tax; income tax refers to other federal and state employment taxes.
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