Federal Insurance Contributions Act
The Federal Insurance Contributions Act is also known as FICA. It is the federal law requiring employers to withhold three separate taxes from their employees wages:
A large number of employees are not aware of this triple whammy tax:
- The 1st tax is the Social Security tax. In short, it is at a rate of 6.2%. And this portion is matched by your employer. Subsequently at the exact same 6.2 percent rate.
- The 2nd tax is a 1.45% Medicare tax sometimes called the “regular” Medicare tax.
- The 3rd tax is a Medicare surtax. The 0.9% rate applies when the employee earns over $200,000
The third tax went into effect in 2013. The employer is also taxed at a 1.45% Medicare tax rate. In conclusion, neither can escape the Medicare surtax.
And don’t worry, the government did not forget the self-employed. Firstly, they pay 12.4% for Social Security. And then secondly 2.9% for Medicare. The total equals 15.3%.
The law always provided a maximum amount of earnings on which the Social Security tax will be collected. In 2019 https://www.moneytalksnews.com/3-ways-social-security-will-change-in-2019/
Certainly Not A Silver Lining
The Social Security tax will be collected on earnings up to $132,900. Any earnings above and beyond that amount are not taxed. As far as Social Security taxes go.
Any and all questions about these taxes are answered on https://ssa.gov. As a result The Social Security Administration was kind enough to provide a philosophical way to look at FICA taxes:
“The money you pay in taxes is not held in a personal account for you. It is not used when you get benefits. Today’s workers help pay for current retirees’. As well as the benefits of other beneficiaries’. Any unused money goes to the Social Security trust funds to help secure today. As well as tomorrow for you and your family.”
It is always a wonderful feeling to know you are doing your part to help current retirees. And other beneficiaries receiving benefits from social security as well. That is to say The Federal Insurance Contributions Act offers both a sunshine glow and a warm fuzzy feeling.
Your Lifetime Earnings Record
Paying into Social Security creates a lifetime earnings record. According to SSA your lifetime earnings record is:
“a chronological history of the amount of money you earned each year during your working lifetime.”
Keeping track of what is in your record is your responsibility. Because The SSA said so. It’s critical to check the accuracy of your earnings record. So make you check it. And make sure you do this at least annually. Because certain errors will result in a smaller monthly benefit.
The Federal Insurance Contributions Act has other moving parts. We will address the other moving parts in future articles.
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