How do FICA Taxes Work?
The FICA taxes are like a savings plan taken directly from workers’ paychecks in the United States to support two big programs, Social Security (12.4%) and Medicare (2.9%). Every time someone earns money from a job, the government takes a small part of it for these taxes. This includes money for Social Security, which gives financial help to older people, those who can’t work because of disabilities, and families who have lost a worker. The other part of the tax goes to Medicare, which is health insurance mainly for people over 65. Both employees and employers share the cost, each paying half of the total taxes needed for these programs. So, as people work and pay into FICA, they are contributing to the funds that will support them and others in retirement or in need of healthcare.
As of 2022, the rates for Social Security and Medicare taxes under the Federal Insurance Contributions Act (FICA) are as follows,
1. Social Security Tax
- Employee Rate: 6.2% of wages up to a certain income threshold. This threshold is $1,47,000 for 2022.
- Employer Rate: Also 6.2% of wages up to the same income threshold ($1,47,000 for 2022).
2. Medicare Tax
- Employee Rate: 1.45% of all wages, with no income limit.
- Employer Rate: Also 1.45% of all wages, with no income limit.
3. Additionally, there is an Additional Medicare Tax of 0.9% that applies to individuals with higher incomes:
- Employee Rate: 0.9% on wages above $2,00,000 for single filers and $2,50,000 for married couples filing jointly.
- Employer Rate: There is no corresponding employer rate for the Additional Medicare Tax; it is only withheld from employee wages.
What is FICA Tax & How it Works : Rates & Exemptions
FICA stands for Federal Insurance Contributions Act, which is a U.S. federal payroll tax that funds Social Security and Medicare programs. FICA taxes are withheld from employees’ paychecks and are also contributed by employers. The tax consists of two components, Social Security Tax and Medicare Tax. Social Security gives money to retired people, disabled individuals, and some widows and widowers. Medicare is a program that helps older people and some disabled people pay for their medical needs.
Geeky Takeaways:
- The FICA tax, integral to the U.S. tax system, ensures funding for Social Security and Medicare programs.
- Social Security benefits include retirement income, support for the disabled, and assistance to surviving spouses and children of deceased workers.
- Medicare provides health insurance to people aged 65 and older and some younger individuals with disabilities.
Table of Content
- How do FICA Taxes Work?
- Who Pay FICA Tax and Why?
- How are FICA Taxes Calculated?
- Wage Base Limits of FICA Tax
- FICA Tax Exemptions
- Do Non-US Citizens have to pay FICA Taxes?
- Conclusion
- FICA Tax – FAQs