What are the two components of FICA taxes?

FICA taxes, which stand for the Federal Insurance Contributions Act taxes, comprise two essential components: Social Security tax and Medicare tax. The Social Security tax funds the Social Security program, which provides benefits for retirees, disabled individuals, and survivors of deceased workers. On the other hand, the Medicare tax supports the Medicare program, offering health insurance for individuals aged 65 and older and for certain younger people with disabilities.

Understanding this distinction between Social Security and Medicare is crucial for payroll specialists, as these taxes are withheld from employees' wages and matched by employers. This dual structure helps to ensure the financial stability of these critical social programs, reflecting the government's commitment to support individuals during retirement and times of medical need. The inclusion of both components as FICA taxes is important for compliance with federal tax laws and for accurate payroll processing.