The FICA(Federal Insurance Contribution Act) is a United States federal payroll contribution that is used by both the employees and employers for the funding of Social Security and Medicare. These federal programs provide benefits for the retired people, people with disabilities, and children of deceased workers.
The contributions of FICA are mandatory. These contributions are revised every year. FICA stipulates a maximum wage base after which there is no need for the contribution for the Social Security. For Medicare, there is no need for a wage base limit. In other words, the amount of the FICA payment depends on the income of an employee. The higher the income, the higher will be the FICA payment. For the year 2018, the maximum wage base $128,400.
The Social Security rate is 6.2% and the Medicare tax rate is 1.45%. The employer has to pay a tax which is equal to the amount that is withheld from the earning of the employee. There is no maximum limit to the Medicare contribution, there is an additional 2.35% tax(1.45% regular tax and 0.9% additional Medicare tax) on the wages over $200,000 for the individual which is paid by the employees.
There are also some pay items and payments that are not subjected to FICA taxes.You can check a list of items that are exempt from the FICA and the Social Security tax.
If you are a self-employed person, then your business is not withheld under the FICA system, but there is another law for payment of taxing on such payments, called the Self Employed Contributions Act (SECA).
FICA tax is not federal or state income taxes. The employers are required by the law to withhold a percentage of an employee's wages under the FICA taxes. If you are wondering about the percentage withheld, then let me tell you about it clearly.
According to the data issued by the Social Security Administration, the payroll taxes that are accounted for a hair over 86% of Social Security's revenue in 2015 and the Medicare relied on FICA taxes in 2014 for 38% of its total revenue of the program.
Paying taxes may not be so easy for a person in America, but these FICA taxes ensures you that you and your future generations will have income and adequate healthcare during your golden years.
FICA tax deduction also gives an advantage to widows and widowers, children who have lost their parents, and those people who are disabled. The amount of tax paid in payroll taxes throughout one's working career is related to the Social Security benefit that a person will receive as a retiree or a family receives if a worker dies. Keep in mind that both the wonder and their employers have to pay the FICA tax.
Self-employed people half of both taxes for a total of 15.3% of their net business earnings. These taxes are reported on Schedule SE with their income tax returns. Self-employed people can cut the employer-equivalent portion of self-employment tax in order to find their Adjusted Gross Income (AGI)