Fast Reply: FICA is a payroll tax on earned earnings that covers a 6.2% Social Safety tax and a 1.45% Medicare tax.
Should you’ve watched “Pals,” you possibly can in all probability relate to Rachel opening her first paycheck and asking, “Who’s FICA? Why’s he getting all my cash?” Should you requested, you had been in all probability informed it was a federal tax, however nothing else. If you need extra particular solutions to questions like “How a lot is the FICA tax charge?” you’ve come to the precise place.
Primarily based on our expertise serving to Individuals file their taxes every year, TurboTax is aware of these acronyms in your paycheck aren’t all the time clear. So we’ve gathered all the pieces you’ll want to know in regards to the FICA tax so you can also make certain your taxes are correct.
What Is FICA Tax?
FICA stands for the Federal Insurance coverage Contributions Act, which President Franklin D. Roosevelt signed into regulation in 1935. The primary FICA tax was collected in 1937.
As a result of FICA is deducted from earned earnings by the employer and despatched to the IRS on the employee’s behalf, it’s thought of a payroll tax.
Each employee pays into FICA to offer present Social Safety and Medicare Half A hospitalization advantages with the promise that when the employee retires, they are going to have entry to the identical advantages paid by present staff. Any FICA income not used to pay present advantages is positioned right into a belief fund to assist maintain the applications afloat.
Social Safety Tax
Earlier than the Nice Despair, no assist system existed for these unable to work as a consequence of incapacity or age, leaving a good portion of Individuals susceptible.
Social Safety (initially referred to Outdated-Age, Survivors, and Incapacity Insurance coverage, or OASDI), was created to offer retirement and incapacity earnings to these unable to work. Recognizing the significance of this system, President Roosevelt established FICA to pay for it slightly than counting on common tax revenues.
Medicare Tax
In 1965, President Lyndon B. Johnson established the Medicare program to offer medical insurance to retired staff and added a Medicare tax to FICA to fund this system.
FICA Tax Charges and Limits
FICA charges are usually adjusted by Congress primarily based on demographics and inflation.
2022 FICA Tax Price
In 2022, a employee can pay 7.65% of their earnings in FICA tax. Of that, 6.2% goes towards Social Safety tax, whereas the opposite 1.45% is devoted to the Medicare tax. The employer deducts this quantity from the employee’s paycheck primarily based on the employee’s W-4 and remits the fee to the IRS semi-weekly or month-to-month.
The employer matches these percentages for a complete tax of 15.3%.
2022 FICA Tax Limits
The FICA tax applies solely to earned earnings; it doesn’t apply to earnings from dividends, curiosity or actual property leases.
In 2022, FICA tax is barely collected on the first $147,000 of earned earnings. As soon as that threshold is reached, FICA is not withheld from a paycheck.
Nevertheless, a 0.9% tax is utilized to earnings over $200,000 (as a single filer) or $250,000 (as a married submitting joint) for Medicare. Employers aren’t required to match this tax.
FICA Tax Charges for the Self-Employed
If you’re self-employed, you’re chargeable for the whole 15.3% FICA tax in keeping with the Self-Employed Contributions Act (SECA), handed in 1954.
Normally, you’re anticipated to pay estimated quarterly taxes in case you count on to owe $1,000 or extra yearly on your taxes. Should you skip making quarterly estimated funds or pay late, it’s possible you’ll be topic to a penalty come tax time.
FICA Tax Exemptions
FICA is a compulsory tax, however there are some exceptions, similar to:
- School college students who work a job on campus the place they’re pursuing a course of examine
- Some lessons of nonimmigrants and nonresident aliens
- Members of sure spiritual sects similar to the Amish
By opting out of FICA, these teams comply with not obtain the Medicare or Social Safety advantages the tax covers.
Easy methods to Calculate Your FICA Tax
To calculate how a lot you pay in FICA taxes every year, multiply your gross pay (as much as $147,000) by 7.65%. In 2022, you can’t pay over $11,242.50 in FICA taxes.
If you’re self-employed, multiply your gross pay (as much as $147,000) by 15.3%. In 2022, you can’t pay over $22,491.00 in FICA taxes.
As acknowledged earlier, the quantity withheld out of your paycheck is adjusted primarily based on the deductions you file within the W-4 together with your employer, so it is very important precisely full that paperwork. Use our W-4 tax withholding calculator to see how you can regulate your W-4 for a much bigger tax refund or extra take-home pay.
Should you swap jobs mid-year otherwise you work a number of jobs directly, over- or underpayment of your FICA tax might happen. To verify the right quantity is being withheld, or to ask questions on your present FICA taxes, attain out to TurboTax Reside to get assist from a dwell tax professional. Whether or not you’re self-employed and have to pay the total 15.3% by yourself or an worker chargeable for the 7.65%, TurboTax may help information you thru the FICA tax charges so your tax return is correct. Totally hand your taxes over to a TurboTax Reside tax professional obtainable in English and Spanish and get your taxes achieved from begin to end. All from the consolation of your own home.Sources: SSA | IRS | SSA
