FICA, or the Federal Insurance Contributions Act, is an agency that collects a tax designated for Social Security benefits from the worker's earnings. Social Security encompasses several social welfare and insurance programs that provide assistance to the unemployed, needy families, and the elderly among others. Paid by both individuals and employers, the percentage of taxes taken out of the gross payroll differs from year to year and is currently set at 15.3 percent.
While the Social Security portion of the tax is capped each year at a set amount it is important to know that the Medicare portion is not. Generally, FICA taxes are collected at a rate of 7.65 percent on the gross earnings, which are your earnings before deductions are taken out. The breakdown of this percentage is as follows: 6.2% goes to Social Security and 1.45% for Medicare. However, in 2011 the FICA tax rate was lowered to 5.65 percent as part of the tax incentives President Obama signed as part of the deal to alleviate unemployment. For 2011 only the employee portion has been reduced by 2 percent as part of this plan.
The Social Security Limit is currently $106,800, which means any employee making that or less can expect to pay the full 7.65 percent on their gross earnings. The maximum contribution to Social Security is $6,621.60 for the employer and 4,485.60 for the employee. However, if you are one of hard-working individuals balancing more than one job in the course of a year and your earnings are in excess of the maximum contribution limit then potentially you might have paid too much Social Security tax. This is because each employer is required to withhold these taxes on your wages, but since they are filed separately you run the risk of exceeding the maximum contribution limit. However, this can be remedied by claiming a refund on your 1040 form when filing your personal tax return with the Internal Revenue Service.
Never wonder about the FICA tax again now that you have all the answers!