 In this presentation we will discuss the Federal Income Contributions Act or FICA. FICA is going to be a big component and something that we will return to when we do the payroll calculations and the recording of the payroll journal entries. FICA is another law that happened in the 1930s during the Great Depression and we had a lot of legislation aimed at making things better or a lot of different aims but in this case we've got the Social Security Act and the Social Security Act or the Federal Income Contribution Act otherwise known as FICA can also be confusing because it really has two major components to it so when we think of FICA we're thinking of the one component old age survivors and disabilities insurance or OASDI and Medicare so keep that in mind whenever you see the term FICA a lot of times people will apply it to one or the other typically to Social Security or their old age survivors and disabilities insurance but it really is comprising of both of these components both of these components fall under the subcategory law of FICA which is the Federal Income Contributions Act or otherwise known as Social Security Act of 1935. FICA is going to be really interesting for multiple different reasons one it's going to be part of our payroll process a major part that will have to be put in for payroll taxes two it's a big part of the government spending and so it's going to be interesting from just a political standpoint we'll always be talking about FICA and the FICA type of payments we may be wondering well how is that the case when we're going to say that the employer is paying it or the employee is paying it we'll discuss more about how that payment process works but it's important to know from a political standpoint that the the money is going to the government and it's going to be paid out at some point and that paying out process is a big part of government spending it's also really interesting because really the thought process of what the especially the old age survivors and disabilities insurance is has tended to change over time meaning when it was first and put into place since the 1930s we had more of a safety net type of idea of what this would be meaning we have some people that were living might live past their life expectancy and when that is the case it's very difficult for an individual possibly to find employment at that point in time I mean if your life if you expect not to live past in that time somewhere around the 60s if you probably not going to go past 65 then because people typically don't live much longer than that then it would be very difficult if you didn't plan for that expectancy to live past a normal life then to go back to work at that point in time so it leaves people in a very vulnerable type of position at that point and therefore there was a safety net the idea of a safety net program which would be set up in order to provide for those individuals later and now of course as people have started to live longer it's almost converting a bit to be thought of as more of a type of retirement type of a retirement type of plan to kind of supplement income in retirement years so there's a really a bit of a debate just from a political standpoint in terms of what do we want FICA to be is it a safety net that's helping people after the point in time uh that that the expected life would be as a safety net or is it's going to be some form of a retirement plan that's required in a federal type of a retirement plan how that's going to work from a payroll standpoint is that we typically have um they kind of like a matching like you might think of some 401k type plans but the the employer is going to be forced to put in part of the taxes based on the employee wages and the employee will have to withhold as well so when we talk about the FICA taxes we're talking about taxes that are both employer taxes and employee taxes and that really is where things get confusing from the standpoint of recording the journal entry because the employer as we noted from the the the constitution made a change where of course the employer is required to withhold taxes that the employee pays so in this case the employer is withholding taxes from the employee and they're having to pay taxes above that as well for this employee tax for this payroll tax and then of course at the end of um so what they're going to do of course is they're going to take that they're going to give it to the government which should put it into a separate fund and not not dip into that fund and then payments will happen at at the at the point in time at the end of a person's towards the end of person's life at some age retirement age which could be extended by law around 65 and then they will receive payments and the payments they will receive back will be based in part on how much they put into the social security or old age survivors and disabilities insurance fund meaning they're they had money taken out of their account into and put into a a fund and then of course they're going to get paid back now notes that what's not the case here is it's not the case where the government is holding on and has this money available and waiting and is investing it kind of like a 401k plan in order to wait for retirement to pay it back out what's really happening is um the current funds going in are paying the current retirees going out so it's not it's not a system where the we're paying it in and they're holding on to it and then they're going to pay it back out at the end of our retirement age as we might think of like a normal kind of 401k plan it's more the case where the current generation is paying in the social security which is being paid out to the current group of retirees and that's just the way it was set up that's the way it was planned for but when there's differences of course in the population then then those differences can cause shortages or overages within the fund so that's going to be an interesting topic we will focus here on what's the law for the withholdings how do we make the withholdings how do we record the withholdings how to report the withholdings to our employees the Medicare portion is going to be it's still somewhat of a safety net program it's going to be some it's going to be similar in the format in that the employer and the employee are going to both be paying it so some of it will come out of the paycheck the employer will take it out of the employee paycheck and the employer will be responsible for their portion as well that they will then pay in and then at at some time later on in life if people qualify for Medicare they could get then the Medicare payments now the Medicare payments currently are a lot less and the percentage is going to be a lot less that it's going to be paid in to Medicare and it's not and it is something that upon receiving benefits from Medicare there's going to be some kind of restrictions you got to qualify basically for Medicare and therefore it probably still falls into a more definite kind of safety net type of program whereas social security or the old age survivors and disability insurance could be thought of by some to be more of a converting more to like a retirement or something to supplement income in the later years rather than just a pure safety net type program end simulation and the simulation