FICA Taxes

If you review your paycheck, you will see a deduction labeled “FICA,” which equals 7.65% of your gross income.

Unlike federal or state income taxes which pay for services like roads, military, and schools, the “Federal Insurance Contributions Act” is specifically designed as a mandatory insurance policy. It is split into two distinct programs:

• Social Security (The Future Income) provides monthly income to retired workers, people with disabilities, and survivors of deceased workers. On your pay stub, it may appear as “OASDI.” The goal is to provide a basic income once people are no longer able to work.
• Medicare (The Future Healthcare) is a federal health insurance program for people aged 65 and older. Because healthcare costs tend to rise with age, this program helps ensure access to medical care later in life.

FICA is not a personal savings or retirement investment account. The money you pay today is not set aside for you; instead, it is used immediately to support current retirees (your grandparents’ generation).

The system relies on the assumption that when you retire in 50 years, there will be a new generation of workers paying taxes to support you.