What Are FICA Taxes?
FICA is an acronym for the Federal Insurance Contributions Act, which is the name of the legislation that requires employers to withhold taxes from your paycheck to cover certain government programs. The FICA withholdings are known as "payroll" taxes, and don't expect to see the amount diminish if George Bush's tax cut proposal passes. His plan is about federal income taxes, not payroll taxes. What comes under FICA are the federal taxes on Social Security, disability, and Medicare. Unlike federal income taxes, which vary depending on how much money you make and how many tax credits or deductions you can claim, the FICA taxes are set at a fixed rate for every employee. For the 2000 tax year, the amount of money an employee paid for Social Security was 6.2 percent of wages up to $76,200 of income. That is, any money you make above the $76,200 ceiling is not subject to further Social Security tax. This
Social Security component (also known as OASDI, an acronym for Old-Age, Survivors, and Disability Insurance) is made up of two things. The bulk is for retirement payouts and survivors' benefits. which claim 5.3 percent of your paycheck; the other 0.9 percent goes to a disability fund. Also under FICA is Medicare, sometimes referred to as HI, for hospital insurance. That takes 1.45 percent of all of your paycheck--there is no ceiling on it. Employers also pay these payroll taxes--for each person hired, they must match the 6.2 percent Social Security tax and the 1.45 percent Medicare tax. For the self-employed, that means the pleasure of being your own boss is diminished by the pain of having to pay your boss's matching share of the tax. Since at the lower end of the wage scale many workers pay nothing or very little in income taxes (as this Readme explains), payroll taxes make up the bulk of their tax burden.Source: www.slate.com