FICA stands for the Federal Insurance Contributions Act. This law requires U.S. employers and employees to contribute to Social Security and Medicare through payroll taxes. Both employers and employeespay a percentage of wages into these programs, which provide retirement, disability, and health benefits.
Image from https://www.ssa.gov/people/materials/pdfs/EN-05-10297.pdf
The FICA system was created in 1935 as part of the Social Security Act. Its goal was to provide a safety net for retired and disabled workers. In 1965, Medicare was added to fund healthcare for individuals aged 65 and older. Together, Social Security and Medicare remain cornerstones of the U.S. social safety net, and FICA ensures steady funding for both programs.
FICA applies to wages earned through U.S. payroll. The tax rate is split equally between employers and employees:
This means employees see these deductions on their paychecks, while employers match the contributions.
For U.S. citizens living in Israel, FICA can raise complex questions. If you are employed by a U.S. company, FICA taxes may still apply to your wages even if you are earning the income in Israel. However, if you are working for an Israeli employer, FICA generally does not apply, while Israeli social security (Bituach Leumi) contributions might.
Philip Stein & Associates helps Americans in Israel understand how FICA interacts with Israeli payroll taxes, ensuring compliance while avoiding unnecessary double payments. Contact us to discuss your situation today.