Glossary
Payroll

Federal Insurance Contributions Act

By: Alec Hollingsworth
Updated:  
June 16, 2025

DEFINITION:

FICA is a federal law requiring payroll tax withholding to fund Social Security and Medicare programs for eligible employees.
The Federal Insurance Contributions Act (FICA) is a United States federal law that requires employers to withhold specific payroll taxes from employee wages to fund Social Security and Medicare programs. Both employers and employees contribute equal portions of these taxes, which are then remitted to the federal government. The Social Security portion helps provide retirement, disability, and survivor benefits, while Medicare supports health insurance for individuals aged 65 or older and certain younger people with disabilities. FICA tax rates and wage bases are periodically adjusted by the government. Nonprofit organizations must also comply with FICA requirements, unless specifically exempt, making accurate payroll processing and reporting essential.

Key Takeaways

  • FICA funds Social Security and Medicare through payroll taxes.
  • Employers and employees both contribute to FICA taxes.
  • Nonprofits must generally comply unless specifically exempt.
  • Accurate payroll processing ensures legal compliance.

Why It Matters

FICA ensures funding for Social Security and Medicare and is legally required for most organizations with employees.

Real World Example

A local animal rescue nonprofit employs five staff members. Each pay period, the organization uses payroll software to calculate FICA taxes, withholding a percentage from each employee’s wages for Social Security and Medicare. The nonprofit also matches these withholdings with an equal employer contribution. At the end of the quarter, the organization files payroll tax reports and remits the total FICA taxes to the IRS. By accurately processing FICA, the nonprofit ensures compliance with federal law and contributes to the long-term financial security and healthcare of its employees.

How Aplos Helps

Aplos Payroll streamlines FICA tax calculations and withholdings, helping nonprofits maintain compliance and accuracy in payroll processing. Our platform automates FICA reporting, making it easier for organizations to meet federal requirements and avoid costly errors or penalties.
launch trading trade finance startup icon

Try it yourself. Start your 15 day free trial

No commitment or credit card required.

Try it For Free

Frequently Asked Questions

What is the Federal Insurance Contributions Act (FICA)?

FICA is a federal law requiring employers and employees to contribute payroll taxes for Social Security and Medicare funding.

Are nonprofits required to pay FICA taxes?

Most nonprofits with paid employees must withhold and remit FICA taxes unless they qualify for a specific exemption.

How does Aplos help with FICA compliance?

Aplos Payroll automates FICA calculations, withholdings, and reporting to ensure accurate and timely compliance for nonprofit organizations.

What happens if FICA taxes are not paid correctly?

Failure to properly withhold and remit FICA taxes can result in IRS penalties, fines, and potential legal consequences for the organization.

How are FICA tax rates determined?

FICA tax rates and wage bases are set and occasionally updated by the federal government, impacting the amount withheld each year.

Related Terms

Mileage Log
Love Offering
Faith‑Based Organization
Fiscal Sponsorship
Reconciliation
Audit Committee

Aplos has everything you need in one place for streamlined nonprofit and church management.

Start A Free Trial

Copyright © 2025 Aplos Software, LLC. All rights reserved.

Aplos partners with Stripe Payments Company for money transmission services and account services with funds held at Fifth Third Bank N.A., Member FDIC.

Aplos

Our StoryTeam AplosCareersReviewsContact UsSecurity

Resources

AcademyAPIPartnershipsReferral PartnersAplos StatusAplos Glossary

Products & Features

Nonprofit SoftwareChurch SoftwareNonprofit AccountingChurch AccountingDonor ManagementNonprofit CRMOnline DonationsFundraising SoftwareText to GiveBill PayPayrollPrepaid Cards

For Customers

Support CenterTraining CenterFind An Aplos Advisor

Compare Us

Compare Quickbooks® For NonprofitsCompare Quickbooks® For ChurchesCompare Sage Intacct For Nonprofits

Services

Nonprofit Bookkeeping ServicesChurch Bookkeeping ServicesImplementation Services
Start A Free Trial

Copyright © 2024 Aplos Software, LLC. All rights reserved.

Aplos partners with Stripe Payments Company for money transmission services and account services with funds held at Fifth Third Bank N.A., Member FDIC.

Legal StuffPrivacy Policy
California Consumer Privacy Act NoticeDo Not Share My Personal Information