Advanced Diploma of Financial Planning (ADFP) 2025 – 400 Free Practice Questions to Pass the Exam

FICA stands for the Federal Insurance Contribution Act. This act establishes the framework for funding Social Security and Medicare programs through payroll taxes imposed on employees and employers. The revenue generated from these taxes is used to provide benefits to eligible individuals, ensuring support for retirees and those with disabilities. It is essential for the functioning of the federal social insurance system and is a key part of the U.S. financial safety net.

The other choices do not accurately represent the full name or purpose of FICA. For instance, the term "Federal Insurance Collection Agency" might imply a role in collecting taxes, but it does not correspond to any existing federal legislation and does not capture the essence of the contribution to Social Security and Medicare programs. Similarly, "Fiscal Insurance Contribution Account" and "Financial Insurance Contribution Assessment" do not reflect the precise terminology or the legal context around the payroll taxes collected under FICA. Thus, understanding FICA in its correct context is critical for grasping how the U.S. funds these essential government programs.