What does FICA stand for in payroll processing?

FICA stands for the Federal Insurance Contributions Act, which is significant in payroll processing as it establishes the framework for collecting payroll taxes that fund Social Security and Medicare. The contributions required under FICA are critical to financing these social welfare programs, which provide benefits for retirees, disabled individuals, and surviving family members of deceased workers.

FICA taxes include both the employer's and the employee's contributions, which are calculated as a percentage of the employee's gross wages. The successful management of these payroll taxes is essential for compliance with federal regulations, ensuring that both employees and employers fulfill their obligations to contribute to these vital social insurance programs. Understanding FICA is fundamental for payroll specialists, as accurate processing of these contributions affects employee take-home pay and overall tax compliance.