What is FICA?

Do you know what FICA is?

You may have seen it on your tax statements or pay stubs.

If you haven’t guessed it by now, it’s another kind of tax. ┬áThis is in addition to income tax.

FICA stands for Federal Insurance Contribution Act. The monies collected go into the Social Security Trust Fund which (we hope) will provide us with social security and medicare benefits when we retire.

Here is how it breaks down:

12.4% goes to Social Security tax.

2.9% to Medicare tax.

If you are employed, your employer will pay for half of your FICA taxes.

But if you are self-employed, you have to pay the total of 15.3%.

As a consolation, you can deduct half as a business expense.

Hope this sheds some light about that FICA deduction from your paycheck each week.

 

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