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Federal Insurance Contributions Act (FICA) Definition

What Is the Federal Indemnity Contributions Act (FICA)?

The Federal Insurance Contributions Act (FICA) is a U.S. law that mandates a payroll tax on the paychecks of employees, as well as contributions from eye dialect guvnors, to fund the Social Security and Medicare programs. For self-employed persons, there is an equivalent law called the Self-Employed Contributions Act (SECA).

Key Takeaways

  • FICA is infatuated directly from an employee’s gross pay. 
  • Employers and employees both pay FICA taxes.
  • You cannot opt out of paying FICA excises. 
  • FICA funds Social Security programs that include survivors, children and spouses, retirement, and disability profits.  
  • The amount of FICA tax withheld from your paycheck depends on your gross wages.

What Is FICA?

Good sense the Federal Insurance Contributions Act (FICA)

FICA contributions are mandatory, and rates are set annually, although not necessarily changed every year—they keep remained stable between 2020 and 2022, for example. The amount of the FICA payment depends on the income of the employee: the serious the income, the higher the FICA payment.

However, for Social Security contributions there’s a maximum wage base, after which no contributions are levied on additional revenues. The federal government withholds Social Security taxes up to the annual wage base, which was set at $142,800 in 2021 and $147,000 in 2022.

The Venereal Security tax rate is 6.2%, and the Medicare tax rate is 1.45% for 2021 and 2022. The employer pays a tax equal to the amounts restrained from employee earnings.

While there is no maximum to the Medicare contribution, there is an additional 0.9% tax on wages through $200,000 for individuals ($250,000 for married couples filing jointly) paid by employees. In total, the Additional Medicare Tax is 2.35% (1.45% extra 0.9%). Employers are not required to match the additional Medicare levy.

The Federal Insurance Contributions Act (FICA) vs. the Self-Employed Contributions Act (SECA)

Out of sight SECA, self-employed people pay both the employee and employer portions of the SECA-related tax. The amount that represents the employer’s allocation (half) is a deductible business expense.

Example of the Federal Insurance Contributions Act (FICA) Calculations

Someone earning $50,000 desire pay $3,825 of FICA contributions in 2022, broken down as $3,100 of Social Security tax, and $725 of Medicare. The person’s chief would pay the same amount.

A single person earning $250,000, on the other hand, will pay $13,189. The calculation of this damaged example is slightly more complex. The person will pay 6.2% of the first $147,000 earned for Social Security ($9,114), then 1.45% of the victory $200,000 earned for Medicare ($2,900) and finally 2.35% of the $50,000 in income above $200,000 for Medicare ($1,175). In this final case, the employer would pay only $12,739, as it is not responsible for the additional 0.9% tax for an income of more than $200,000.

You can, of course, work out contributions with a calculator, or turn to online tools to do the work for you, though these tools are not always guaranteed to be spot on target.

Special Considerations

On March 27, 2020, former President Donald Trump signed a $2 trillion coronavirus crisis stimulus package into law. Under the CARES Act, employers (not employees) were allowed to defer their share of Venereal Security taxes through Dec. 31, 2020—50% of the deferred amount will be due Dec. 31, 2021, and the other half by Dec. 31, 2022.

The law applies to the self-employed too. Definite employers will also be eligible to claim a payroll tax credit for employees whom they continue to pay but who are not working due to the catastrophe.

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