Utah Contractor Practice Exam

What does FICA primarily fund?

1. Unemployment benefits

2. Retirement benefits

3. Health insurance coverage

4. Temporary disability insurance

The correct answer is: Retirement benefits

FICA, which stands for the Federal Insurance Contributions Act, primarily funds Social Security and Medicare, with the majority of its focus on retirement benefits. Through payroll contributions from both employers and employees, FICA collects funds that contribute to the Social Security system, which provides financial assistance to retired individuals, survivors of deceased workers, and individuals with disabilities. Additionally, part of the FICA contributions also goes toward Medicare, which oversees health insurance for individuals aged 65 and older, as well as certain younger people with disabilities. While unemployment benefits, health insurance coverage, and temporary disability insurance are vital components of the social safety net, they are funded through different mechanisms and programs, such as state unemployment taxes or specific health care legislation. Therefore, the primary function of FICA is indeed to secure retirement benefits for individuals who have contributed to the system during their working years, highlighting its importance in ensuring financial stability for retirees.