What Are FICA Wages
No matter what your job is, chances are that each paycheck comes with a pay stub that shows several deductions from your wages. Some of these deductions, like insurance premiums or 401k contributions, are voluntary. Other deductions, like taxes, are mandatory by federal and local laws. One mandatory deduction has the mysterious title of FICA.
It looks like a tax, and they take it out of your paycheck like a tax. But, is it really a tax?
You know the old saying, if it walks like a duck and talks like a duck, it's probably a duck.
What Does FICA Mean?
FICA stands for Federal Insurance Contributions Act, which is the law that provides for the collection of the payroll taxes. FICA was necessary in order to separate the tax provisions of the Social Security Act from the social security benefit program. FICA added social security taxes to the Internal Revenue Service (IRS) code. Don't let the word Contributions fool you though, it's a tax alright.
Social Security Taxes
There are two components that make up FICA taxes. The main program known as Social Security is officially called the Old-Age, Survivors and Disability Insurance (OASDI) program. These taxes are listed on most pay stubs under the heading FICA. Medicare's hospital insurance program is typically listed as another payroll tax although FICA also provides the funding authorization for it. In other words, although you'll usually see two lines on your pay stub, one for Medicare and one for FICA, the authorization for both taxes comes from the same place.
Once you have worked and paid FICA taxes for at least 40 quarters (that would be 10 years, if you worked continuously), you are eligible to receive benefits from those taxes you paid in the form of Social Security retirement benefits, or Social Security disability benefits.
Employees who contribute to certain retirement programs such as a 401k plan reduce their taxable income by the amount of the contributions. These pretax dollars reduce the person's taxable income and therefore the taxes paid on income. However, these contributions do not reduce the amount of income used to calculate FICA taxes. Thus, FICA wages are the total income regardless of any deductions.
-- You might also be interested in the difference between exempt and nonexempt employees.
More by this Author
Occasionally, there is some confusion as to how to close a brokerage account. With a standard bank account, typically you go down to the bank in person or call customer service, or even write a letter telling them to...
State of Slim is a healthy diet plan. There are three phases. This is the food list allowed for Phase 3.
Ingress recently added three new badges. What are these 3 new Ingress badges, and how can they help you get to higher Ingress levels?
No comments yet.