What is Federal Insurance Contributions Act (FICA) Tax?

What does FICA stand for?

The acronym FICA stands for the Federal Insurance Contributions Act tax.

FICA tax definition

FICA is the law passed in the United States requiring all employees to pay a percentage of their earnings towards the country’s Social Security and Medicare programs. That percentage is matched by the individual’s employer and paid into the same programs. In the case of typical salaried employees, the percentage is simply withheld from their wages by their employer, while self-employed individuals are responsible for paying both halves bundled into an equivalent tax themselves.

Commonly referred to as the singular FICA tax, it is actually a combination of two separate tax rates. Social Security and Medicare define FICA tax rate. To calculate, apply these percentages to your earnings:

Social Security Tax Rate (6.2%) + Medicare Tax Rate (1.45%) = FICA Tax Rate (7.65%)

The FICA definition includes annual revision of tax rates as well as a limit on taxable wages, also annually revisable. While there is no limit in place for Medicare contribution, there is a cap set on mandatory Social Security contribution. Since FICA tax is set as a percentage, it increases with an individual’s earnings.

What’s included in US FICA?

FICA includes all earned income, with very few exceptions. Self-employed income is not included in FICA, but it is subject to an equivalent self-employment tax of 15.3%. Some states provide alternative plans to Social Security and allow employees and employers an exemption from the Social Security portion of FICA. The Social Security tax ceases to apply for earnings beyond the Social Security maximum for 2018, which is $128,000.

What is FICA on my paystub?

Almost everyone working as an employee will have FICA taxes deducted from their wages. However, some types of income are exempt. Monthly tips under $20, workers’ compensation, employer contributions to retirement plans, employee insurance, and family employees under 18 are all exempt from FICA. Students involved with a work study program at their university may be exempt, if they meet certain qualifications.

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