FICA tax is another kind of tax taken out of your paycheck in addition to income tax. Named after Federal Insurance Contributions Act, a law that requires employers to withhold 3 types of taxes, (Social Security, Medicare & Medicare Surtax if a single employee makes over $200,000). These taxes go to Social Security Trust fund, which will provide you (keep your fingers crossed) when you retire, with Social Security benefits (Pension) and Medicare (medical benefits).
FICA is comprised of a 12.4% Social Security tax and 2.9% Medicare tax. If you’re employed, your employer picks up half of each, and the total 7.65% will be deducted automatically from your paycheck. Those who own their own businesses will owe the full 15.3%.
Social Security tax is only assessed on $118,500 of earned income in 2016. After that you are done paying for the year.
Medicare tax assessed on all your earned income. And if you make over $200,000 (single taxpayer) there will be additional 0.9% surcharge tax.
Now it’s your turn, Take out your pay stub and take a look how much tax you paying.
I passionately believe that in order to live a life of fulfillment and joy, we must genuinely serve each other in any way possible. I found my mission in life to serve others via financial planning. Anna regularly writes about personal finance. Her work appears on Business Insider, Nasdaq, Nerdwallet, among others. Anna is the creator of Money Flow system.