Final answer:
FICA taxes are deducted from employees' paychecks to fund Social Security and Medicare, with employees seeing deductions of 6.2% and 1.45%, respectively. Employers match these contributions, though their share might indirectly affect wages. For Social Security, there's a wage cap for taxation, while Medicare taxes have no upper limit.
Step-by-step explanation:
FICA taxes, or the Federal Insurance Contributions Act tax, support two critical social welfare programs: Social Security and Medicare. These mandatory payroll deductions help fund retirement benefits, disability benefits, and health care for the elderly. An employee’s paycheck will typically show a deduction of 6.2% for Social Security and 1.45% for Medicare, with the employer matching these contributions. However, it’s noted by economists that the employer’s share may indirectly affect the employee's wages. Additionally, there are different rules for those who are self-employed or part of the gig economy.
For Social Security, the payroll taxes are capped at a certain wage limit, which was set at $118,500 in 2015. Above this limit, no Social Security tax is assessed. Conversely, Medicare taxes are applied at 2.9% with no wage ceiling, ensuring ongoing support for elderly healthcare.