Definition of FICA
FICA is the acronym for Federal Insurance Contributions Act, which requires employers to withhold the following from each employee's paycheck:
- Social Security tax
- Regular Medicare tax
- Additional Medicare Tax (if applicable)
The FICA tax is based on the employee's wages, salary, commissions, bonuses, etc.
Definition of FICA Matching
In addition, the employer is required to match the following amounts that were withheld from the employees' paychecks:
- Social Security taxes
- Regular Medicare taxes
The employer does not match the Additional Medicare Taxes that were withheld from the employees' paychecks.
The employer must remit both the amounts of the FICA withholdings and the employer's matching to the U.S. government by specific dates.
Example of FICA Matching
If an employer has only one employee earning $30,000 per year, the employer must withhold from the employee's paychecks a total of $2,295 in FICA taxes. (Social Security tax = $30,000 X 6.2% = $1,860. Regular Medicare tax = $30,000 X 1.45% = $435.) The employer must also match the $2,295 and remit the total of $4,590 to the U.S. government within a specified period after the dates of the paychecks.
FICA Matching is an Additional Part of an Employee's Compensation
The employer's matching of the FICA taxes (the matching amounts for the Social Security tax and the regular Medicare tax) is recorded by the employer as a payroll tax expense or fringe benefit expense if the employees do not work in a manufacturing department. If the employee works in a manufacturing department, the amount of the FICA matching is recorded as part of the company's manufacturing costs.
You can find the rules for FICA taxes in the Internal Revenue Service Publication 15 (Circular E) Employer's Tax Guide at the website www.irs.gov.