Understanding FICA Taxes

If you have a job, then there is a good chance that you have heard of FICA taxes since these are taxes that all people have to pay, like it or not. Employers withhold FICA taxes from your paycheck, which may leave you wondering what, exactly, these taxes are and where your money is going.

In basic terms, FICA taxes are Social Security and Medicare taxes. They are paid both by workers and employers.   

They are called FICA taxes because FICA stands for “Federal Insurance Contributions Act,” an act which has been around since the 1930s and has affected taxes ever since.

Now that you know what FICA taxes are, you may be wondering just how much they’re costing you. The answer, however, varies from person to person. The total FICA tax is always 15.3% of an employee’s gross income, with the employer and employee each paying half or 7.65%.

Of course, not all funds that you earn are going to be taxable under FICA. Social security wages, for example, are exempt from FICA taxes. If you have concerns about what is and is not exempt in terms of your wages, you can speak with your employer or with a financial adviser to ensure that everything is being handled correctly.

Sometimes, employers do accidentally deduct too much in FICA taxes. When this happens, you are entitled to a full refund of the overage, and this money will not be taxed or treated as income since you should have already received it. You should talk with your employer if you believe too much was accidentally withheld from your pay for FICA taxes.

As you can see, FICA taxes, by all accounts, seem to be here to stay. Make sure yours are being handled correctly and fairly by working closely with your employer and, ideally, also having a tax adviser of your own on the side.