What is FICA and why do I have to pay the tax? – Marca English
In your paycheck, have you ever wondered what FICA is?
Most of the American citizens tend to get their taxes out of their payslip and the most important one is called the Federal Insurance Contributions Act (FICA). If you ever wondered what FICA is, we got you covered on every detail about it. This is a charge that is also known as payroll tax and FICA is actually the law that needs employers to get money from staff paychecks.
Social Security programs are funded partly thanks to payroll taxes, these programs include unemployment insurance and Medicare. Basically, the plan is for you to pay now so you can access the funds at a later date if you either lose your job or retire. Year’s rates are the exact same as 2021, for the time being.
Every month, your boss is supposed to take 6.2% out of your wage and will also match that same 6.2% per employee for Social Security, which equals a 12.4% in total. Rate for Medicare right now is at 1.45% for the employer and the same for a worker, which translates to a 2.9% total. These are numbers that come directly from the IRS.
But the Social Security element of payroll tax has increased this year to a wage base limit of $147,000. Meaning that you will not pay the Social Security as part of the payroll tax on earnings that go over that amount. Investopedia determined that the maximum Social Security tax that an employee will have withheld is $9,114.
FICA taxes fund both Social Security payments and Medicare. The former’s taxes go directly into a pot for the Old-Age and Survivors Insurance Trust Fund and the Disability Insurance Trust Fund. These funds are pretty self-explanatory. As far as Medicare is concerned, part of the payroll tax covers inpatient hospital visits and other healthcare services for elderly citizens and people suffering from specific conditions.
This tax also funds unemployment insurance, which is also self-explanatory. But losing a job and getting this benefit has to be from workers who lost a job by no fault of their own.
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