Video: Federal Insurance Contributions Act

In this lesson, Nick Palazzolo, CPA, breaks down the complexities of the Federal Insurance Contributions Act (FICA) with a blend of empathy and expertise. With an encouraging tone, he explores the contributions to Social Security and Medicare and clarifies their impact on retirees, the disabled, and their dependents. Nick simplifies the responsibilities of employees and employers regarding FICA withholdings and payments, delving into specific examples that show how these taxes function in real-life scenarios, including for individuals with varying work situations and incomes. He further sheds light on how FICA taxes relate to gross earned income, the nuances of self-employment tax, and potential penalties for employers’ non-compliance. Complete with relevant examples and a touch of personal reflection on the broader implications of tax laws, this lesson keeps morale high while navigating the serious subject matter.

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Video Transcript

Instructor: Nick Palazzolo

Nick Palazzolo is head instructor of ExamPrep.ai CPA Review. Nick's teaching style is engaging & upbeat, combining practical Big 4 tax & assurance expertise with years of 1-on-1 coaching. His lessons are concise and emphasize what you need to know to pass. Whether you're a recent grad or working full-time, we’re confident you can conquer your CPA exams with Nick’s review.

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And it really this exam, I just got to say, as I've been recording it more and more, it's just talking about injury and divorce and death and just this regulation exam out of everything. It's just so heartless, right? Just taxation of all these horrible things. I just stay strong, stay strong, all of you out there. We will make it through this together and I'll try to keep a chipper, upbeat personality throughout it all. Let's dive more into FICA. Well, FICA, this stands for the Federal Insurance Contributions Act. I don't really need to memorize that, but just FYI. The big thing to know here is that it consists of Social Security and Medicare. So when you contribute to FICA, it goes toward both of these. These programs, they're going to provide benefits for retirees, the disabled, and their dependents. That's one thing we'll see is if the person who was receiving the benefits passes away, well, those benefits may go to their dependents. This tax is going to be levied on earned income, such as wages, salaries, and self-employment income. We'll also see a little bit more about that later on. Full-time and part-time employees must participate in FICA and employers are responsible for withholding the appropriate FICA tax amounts from employees' paychecks and submitting the withheld taxes to the government. So it is the employer's responsibility to withhold that. It's not like automatically somehow the government comes in and sticks their hands in and takes parts of your paycheck and takes it. No, that FICA deduction you see is taken by the employer. Just like if you see sales tax, when you buy something on your receipt, that money is withheld specifically by the company and then it's remitted, it's given to the government because

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