What is FICA Tax?
FICA stands for the Federal Insurance Contributions Act. This law outlines that taxes should be cut from pay checks and used to finance Social Security and Medicare programs. Both employees and employers are affected by the FICA tax.
What’s a FICA?
The law establishing the FICA tax was adopted in 1935. Funds are used to provide pension savings and insurance programs for working Americans. The FICA tax is designed to provide support for pensioners who are eligible for assistance.
Paying FICA taxes also allows you to benefit from disability and life insurance benefits. If you are disabled, you may qualify for Social Security disability allowance if you meet certain criteria and meet the minimum number of Social Security credits based on your age. If you die, Social Security may also be available to your eligible family members, such as their remaining benefits, underage children and a surviving wife who is 60 or older.
FICA Tax rates
Both employees and employers pay FICA taxes at the same rate. FICA taxes are divided into two parts: Social Security tax and Medicare tax. The Social Security tax rate is 6.2% of the fees for 2022 and the Medicare tax rate is 1.45% of the fees. Together, they are a 7.65% tax rate for FICA taxes. If you are a freelancer, you must pay for both the employee and employer’s share of FICA taxes, which are 15.3% of the earnings.
FICA tax is paid by most workers, while the tax does not apply to all pay checks. Payments that are not subject to FICA taxes include:
- Children under the age of 18, employed by their parents.
- Qualified retirement plan contributions from employers.
- Service performed by students employed by a school, college or university.
- Some church and qualified church-controlled organizational fees.
- Some state and local government salaries.