FICA is the acronym for the Federal Insurance Contributions Act. This act mandates that an employer withhold a set percentage of an employee’s salary each pay period. FICA also requires that the employer match the employee’s amount and contribute the money to a government account known as the Social Security Trust Fund. This fund provides retirement income, as well as disability insurance, Medicare, and benefits for survivors.

FICA was the result of the Social Security Act of 1935, proposed by President Franklin D. Roosevelt. The program began collecting taxes and paying benefits in 1937. In 1939, FICA was amended to include widows and orphans of working spouses, as well as elderly people who had not paid into the system.

Originally, Social Security benefits were only available to people who were under 65 and who worked in what was considered commerce and industry. Government employees, medical personnel, lawyers, and agricultural workers were all exempt from FICA, and because they were not required to pay into the fund, they could not collect monies from it. These restrictions have been lifted, and although there are still categories of workers who can opt out of paying into FICA, no one is expressly excluded from participation.

The Social Security Trust Fund, established in 1939, is responsible for collecting the money that is raised through employer/employee contributions required by FICA. The Department of the Treasury is responsible for managing these funds and charged with investing this money in securities backed by the US government. The government is in effect loaning the money to itself, and then using it to finance other projects. The money is repaid when the bonds come due.

Only people who have paid into Social Security through FICA are eligible to receive benefits from the fund. Currently, a person can collect reduced benefits at age 62. Distribution of full benefits is determined by an individual’s birth year. People who were born before 1938 were able to collect full benefits at 65. For those born between 1938 and 1943, the age increases at a rate of two months per year up to the age of 66 for those born in 1943. Retirement age remains 66 for everyone born between 1943 and 1954, and then increases again, up to 67 for those born in 1960 and after.

Originally, Social Security benefits were not taxable. However, in 1983, Congress passed amendments to the Social Security Act that would consider 50% of benefits to be taxable income for beneficiaries with a total income that exceeded an established limit. This amount was increased to 85% in 1993.