What is FICA?

What is FICA?

FICA (Federal Insurance Contributions Act) taxes are handled by the Social Security Administration, as they are payroll withholdings that go toward Social Security and Medicare funds.

Most people will have half of their FICA paid by their employer, but self-employed people must pay it all on their own, which is called the “Self-Employment Tax.” FICA is a tax on employees and employers that funds the Social Security and Medicare programs of the United States.

12.4% of employee compensation (up to $118,500 in 2016) goes toward Social Security, with half of the tax paid by your employer if you are not self-employed.

The Medicare tax is 2.9%, with half of it being paid by an employer, but an additional 0.9% is due from people whose income is over $200,000 or $250,000, depending on whether they file as single or married. Self-employed people must pay the entire 12.4% social security tax themselves; when combined with the Medicare tax, this is known as the Self Employment Tax.

The nice thing about these taxes is that they have direct benefits to the citizen paying them, because everyone who paid in to social security will be able to draw an income from it at a certain age, and Medicare benefits are available to everyone at age 65.

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