Did you just get your pay statement and find yourself asking what is FICA, and why is it taking so much money from me? It’s a valid question and one that has a simple answer.
Read on to find out what, exactly, FICA deductions are, and how you can calculate them!
What Is FICA?
FICA stands for the Federal Insurance Contributions Act. The FICA Tax is a deduction taken from everyone’s pay to pay for Medicare and for Social Security. You can learn more about this but your employer will match your contributions
If you’re self-employed, you won’t see FICA on your paystub. Instead, you’ll have to calculate your own deductions through a similar law called the Self-Employed Contributions Act (SECA). If you’re self-employed, you’ll have to cover both the employee and employer taxes, effectively doubling the amount you owe.
How Much Does FICA Deduct From My Pay?
FICA contributions are fixed at 7.65 percent of your gross, or pre-tax, earnings for most people. Of that percentage, 6.2 percent goes towards Social Security, while the remaining 1.45 percent is from Medicare. Your employer will pay the same amount of tax on your behalf.
How are Social Security Deductions Calculated?
Social Security FICA deductions are always calculated at that 7.65 percent rate. However, there is a maximum amount of money that can be withheld from your pay for Social Security each year. Only the first $132,900 can be taxed, for deductions equaling $8,239.80 per year.
Of course, this can all change year to year, as Social Security legislation changes. The Social Security Administration determines the maximum taxable earnings each year. For example, for 2019, that maximum is $132,900, while in 2018 it was $128,400
How are Medicare Deductions Calculated?
In some cases, your Medicare contributions may be slightly higher. This depends on your household income and marital status. You will be charged another 0.9 percent (for a total of 8.55 percent of your gross earnings) if:
- If you’re single and made over $200,000 annually
- If you’re married, filed your taxes jointly, and made over $250,000 annually
- If you’re married, filed your taxes separately, and made over $125,000 annually
You should note that there is no maximum to how much can be withheld from your pay for Medicare.
Always Check Your Pay Stub to Verify FICA Deductions
Now that you can answer the question “what is FICA and why is it on my paycheck,” it’s important that you check the FICA amount each week. You want to be made aware of any changes in your FICA deductions, as they can point to mistakes that cost you money. The formulas above are very simple to follow, so you can verify that the payroll software is doing its job properly.
Want more information about taxes, budgeting, and personal finance? Check out the other articles right here on our blog!