FICA

These initials stand for Federal Insurance Contributions Act, which is the law that covers Social Security and Medicare. Amounts are withheld from the wages of employees for their contribution to the Social Security and Medicare programs. The withholding rate for Social Security contributions is 6.2% and for Medicare 1.45%. The maximum wage amount on which Social Security tax is paid for 2008 is $102,000; there is no maximum for the Medicare portion. The employer also pays an amount equal to the employee’s contribution. If an employee works for 2 or more employers and has tax withheld for Social Security contributions on more than the annual wage maximum, the excess withholding is refundable as a tax credit on the employee’s income tax return.