Future Business Leaders of America (FBLA) Personal Finance Practice Test

What does a deduction labeled FICA from your paycheck represent?

1. Income tax

2. State tax

3. Social Security taxes

4. Medicare tax

The correct answer is: Social Security taxes

The deduction labeled FICA from your paycheck represents contributions to Social Security taxes. FICA, which stands for the Federal Insurance Contributions Act, is a federal law that mandates a payroll tax to fund two main programs: Social Security and Medicare. When an employee sees FICA on their paycheck, it is essentially the combined amount that encompasses both Social Security tax and Medicare tax, but it is often associated primarily with Social Security because this is one of its main purposes. Social Security provides benefits to retirees, disabled individuals, and survivors of deceased workers, ensuring financial support for those who qualify. The tax is critical for maintaining the solvency of the Social Security program, which serves as a safety net for millions of Americans. While Medicare tax (another component of FICA) is also deducted, the primary focus of this question revolves around what is broadly associated with FICA—hence, its connection to Social Security is key to understanding this deduction on a paycheck. Income tax and state tax refer to different forms of taxation and do not relate directly to FICA, thus clarifying the uniqueness of this deduction.