CSLB Contractor's Law & Business Practice Exam

FICA tax, which stands for the Federal Insurance Contributions Act tax, is primarily designed to fund Social Security and Medicare programs. The structure of FICA tax requires a shared responsibility between the employer and the employee. Each party contributes an equal portion of the FICA tax.

Both the employer and the employee pay a rate that encompasses Social Security and Medicare taxes. As of the last updates, the Social Security portion is typically 6.2% of the employee’s wages, and the Medicare portion is generally 1.45%. This means that the total FICA tax rate is 7.65% for both the employer and the employee, resulting in a 50/50 split of the tax burden.

This distribution aligns with the broader principle of tax contributions, where the burden of funding significant social programs is shared, allowing for a more equitable system. This shared contribution structure is crucial to maintaining the solvency of Social Security and Medicare for future generations.