What Are FICA Wages

No matter what your job is, chances are that each paycheck comes with a pay stub that shows several deductions from your wages. Some of these deductions, like insurance premiums or 401k contributions, are voluntary. Other deductions, like taxes, are mandatory by federal and local laws. One mandatory deduction has the mysterious title of FICA.

What Does FICA Mean?

FICA stands for Federal Insurance Contributions Act, which is the law that provides for the collection of the payroll taxes. FICA was necessary in order to separate the tax provisions of the Social Security Act from the social security benefit program. FICA added social security taxes to the Internal Revenue Service (IRS) code.

There are two components that make up FICA taxes. The main program known as social security is officially called the Old-Age, Survivors and Disability Insurance (OASDI) program. These taxes are listed on most pay stubs under the heading FICA. Medicare's hospital insurance program is typically listed as another payroll tax although FICA also provides the funding authorization for it.

Employees who contribute to certain retirement programs such as a 401k plan reduce their taxable income by the amount of the contributions. These pretax dollars reduce the person's taxable income and therefore the taxes paid on income. However, these contributions do not reduce the amount of income used to calculate FICA taxes. Thus, FICA wages are the total income regardless of any deductions.

-- You might also be interested in the difference between exempt and nonexempt employees.