What are FICA taxes?
FICA stands for Federal Insurance Contributions Act. FICA taxes are payroll taxes that are deducted from an employee's paycheck to fund two major social welfare programs in the United States: Social Security and Medicare.
Social Security provides retirement, disability, and survivor benefits to eligible individuals and their families. Medicare provides health insurance to individuals who are 65 or older, as well as to younger people with certain disabilities.
How are FICA taxes calculated?
FICA taxes are calculated as a percentage of an employee's gross wages. As of 2021, the Social Security tax rate is 6.2% on wages up to $142,800, while the Medicare tax rate is 1.45% on all wages. Employers are also required to pay a matching amount of FICA taxes for each employee.
Are there any exemptions or deductions for FICA taxes?
There are some exemptions and deductions for FICA taxes. For example, certain religious groups and foreign government employees may be exempt from paying FICA taxes. Additionally, employees who earn less than a certain amount may be eligible for the Earned Income Tax Credit, which can reduce their FICA tax liability.
Can self-employed individuals be subject to FICA taxes?
Yes, self-employed individuals are subject to FICA taxes, but they are responsible for paying both the employer and employee portions of the taxes. This is known as the self-employment tax, and it is currently set at 15.3% of net earnings.
Nick Simpson
Founder @ WorkMade
I started working for myself at 9. My first tax bill showed up at 14. I didn’t understand it, and nobody around me could really explain it. If you’ve been there, you get it. Twenty years later, after creative directing for brands in New York and buying and selling a few companies, I kept seeing the same thing: smart, talented people losing money to a system that wasn’t built for how they work. That’s why I built WorkMade. Not to make taxes “easier to understand” but to make them disappear into the background, so you can get on with your life.