FICA stands for Federal Insurance Contributions Act. By federal law, every employers is required to withhold a certain portion of an employee's wages and send them quarterly to the Internal Revenue Service that will, in turn, put them into a government trust fund for your retirement and health insurance when you retire, also known as Social Security and Medicare. In addition, your employer must match your contribution, which is 7.65 percent. Of the total contribution, 12.4 percent is allocated to Social Security, and the balance to Medicare.
Social Security came into being during President Franklin Delano Roosevelt's first term. At that time, it was considered a safety net for citizens, but it now represents the total income of about 50 percent of the retired population. In 1965, President Lyndon Johnson signed Medicare into law as part of his "Great Society." It provides affordable health care to people after they retire at 65. Over the years, both the rate and wages subject to FICA have increased.
Until Social Security and Medicare were signed into law, retired people in the United States had to rely on their own resources to get by. This required routine savings, a quality not possessed by the majority of people. Today, most developed countries around the world have some form of government-sponsored program for taking care of their older citizens by providing them with retirement income and health care.
If you are self-employed, you must pay 15.3 percent of your salary under FICA since you are both the employer and the employee. However, half of that amount, or 7.65 percent, is deductible as a business expense.
Most people consider retirement age as 65. However, under current law, a person can retire at 62 years of age, but his Social Security benefit will be less than if he waited until he was 65. A person becomes eligible for Medicare coverage when he reaches 65 years of age, and the premiums for that coverage are less than $100 per month -- far less than what he would pay for private insurance.
Social Security benefits are only available to people who have worked a minimum of nine calendar quarters during their lifetimes. People who have not worked for at least that long are not eligible under current rules. Furthermore, Social Security benefits are based on the amount that you earned during your lifetime, so persons who barely qualify will receive a small benefit.