FICA is an acronym for Federal Insurance Contribution Act and is a form of social security insurance tax collected via payroll taxes, administered by the Internal Revenue Service.
History of FICA
American citizens helped others less fortunate long before the country was formed and legislation considered. Neighbors helping neighbors and relatives aiding relatives were common philosophies and acts since humanity formed its first permanent structures. Communities formed under the premise of mutual protection and aid.
For much of America’s history, its citizens lived off the land; hunting, fishing, trapping, and farming comprised much of its economic and survival crux. Industrial development in the late 1900’s prompted a gradual paradigm shift to employers aiding workers and workers’ families. By the late 1920’s many municipalities, states, and the federal government had in place some kind of retirement benefit plan for public employees.
The Depression of the 1930’s amplified the need for public aid, and on August 14, 1935, President Franklin D. Roosevelt signed into law the Social Security Act. The act gave birth to two public aid programs, one of which was geared toward old-age retirement benefits and one toward unemployment. From the retirement branch, the taxation script transferred from Title II of the Act to Title VIII, and the taxation authority became the Internal Revenue Service. Because of awkwardness of phrasing, the taxation legislation was renamed the Federal Insurance Contribution Act or FICA and became operational in 1939. However, benefits were originally scheduled to be paid in 1942. The country’s dire unemployment situation caused early benefit payment starting in 1940.
The Federal Insurance Contribution Act receives funds from employment taxes deducted from both employees and employers. The monies are used to grant retirement funds and benefits to retired workers, their families, disabled workers, and family members of deceased workers.
Self-employed workers do not contribute to FICA but to a separate program also administered by the Internal Revenue Service unless they hire employees into the business.
The US Supreme Court has ruled that although FICA is an insurance plan, no one has vested rights to any amount he or she has contributed toward the public aid plan. A worker cannot withdraw from the contributions program and seek funds reimbursement.
Social Security Administration, “Historical Development,” found at: http://www.ssa.gov/history/pdf/histdev.pdf
Social Security Administration, “What does FICA mean and why are Social Security taxes called FICA contributions?” found at: http://www.ssa.gov/mystatement/fica.htm
UNITED STATES v. FIOR D’ITALIA, INC.; certiorari to the united states court of appeals for the ninth circuit. No. 01-463. Argued April 22, 2002-Decided June 17, 2002. Found at: http://www.supremecourt.gov , FICA search: http://www.supremecourt.gov/search.aspx?Search=FICA&type=Site
South-Western, CENGAGE Learning; “Concepts in Federal Taxation 2009 Edition,” ©2009, by Kevin E. Murphy; p. 11-82