What is FICA Tax?
Do you remember when you got your first job, and how happy you were when you got your first paycheck?
You might have also been unpleasantly surprised when you noticed how many tax dollars were deducted from your paycheck.
If you paid attention you would have notice that one of those taxes is FICA, you might have taken the time then to investigate the FICA tax, or you might have just accepted that it was a government tax and there was nothing you could do about it.
Well, part of that last paragraph is true, FICA is a government tax and there isn't anything you can do about it. However, you can take the time to learn what FICA is and how it works for you.
FICA stands for Federal Insurance Contributions Act, and it is a U.S. federal government tax.
The money that is taken from your paycheck for FICA each pay period is used to provide funds for both the Medicare and Social Security programs.
When you get a job and start working, you begin paying taxes into Social Security and Medicare. The FICA tax on your paycheck represents the amount of money the government pulls out of your paycheck to pay those taxes.
What you might not know is that your employer has to match the amount of money you pay. The dollars that your employer matches and your dollars, is put into the Social Security Trust Fund.
The Social Security Trust Fund is the money received from the FICA tax fund. Eighty-Five (85) cents of each dollar contributed to the fund is used to pay for the following:
- Current Retirees
- Eligible Family Members of Retirees
- Eligible Family Members of Workers are Deceased
The other fifteen (15) cents of those dollars goes into a trust fund that is used to pay people who are:
- Eligible Family Members of People with Disabilities
We pay into the Social Security Trust Fund so that if we become disabled, or when we become eligible for Social Security benefits, we have actually "earned" the payments we receive.
Hopefully, this article has given you a brief overview of, and has helped you understand the answer to the question "What is FICA?"
The video included below is called "Social Security 101: What's in it For Me?" This video was produced by the Social Security Administration, and it will give you an in-depth look into everything you could possible ever want to know about the Social Security Program.