For the working class, it is important to know what FICA or the Federal Insurance Contributions Act is. This act states the employee's and the employers’ responsibility to pay a portion of their income so as they have “social security.” Without this act, the working class will not have their social security trust fund contribution. Therefore, they have no other means of securing income when they retire or become disabled.
What is FICA?
Generally, FICA is a payroll tax in the United States of America. This is imposed by the government on both the employers and employees to fund Medicare and Social Security. These programs provide financial benefits for the disabled, retirees, and children and widows of the deceased worker. Because of its nature FICA was thought by some not as a tax because it provides benefits.
It was in the 1930s when Social Security was introduced. FICA tax was also introduced during this era as a way to pay for the Social Security. Then, only the retirement and disability are covered. In 1960s, Medicare was included to the benefits.
More improvements have been made on the act until today. It will continue to be rectified as long as the need is there. After all, FICA is for the employees’ benefits.
Only after defining the difficulties being experienced by the American working class that FICA was introduced. Retirees have no other way of earning income when they stopped working. People with disability have stopped earning also because their work was affected by their condition. People who stopped working have also stopped spending for their health care. Children and wives of the deceased worker have nowhere else to go to for a living after the worker has died.
With all these problems, the Social Security was introduced and FICA was made to regulate how much should be contributed and how this contributions will provide benefits.
Computing FICA Tax
Both regular employees and the self-employed can contribute to Social Security and Medicare. However, self-employed people are not regulated under FICA but by the SECA or Self-Employed Contributions Act of 1954.
Regular employees are those earning regular income from a company. They are different from the self-employed who usually earn per work or per project basis.
According to FICA, regular employees will pay a portion of their salary every payday while their employers will also pay a portion for them. The employee has to pay 6.2% of his income for the Social Security and 1.2% for Medicare. The employer has to pay the same, too. That’s a total of 15.3% payment every payday.
The self-employed, on the other hand, pay 15.3% of his declared regular income.
There are still many rules and regulations under FICA. Knowing what FICA is is not enough to understand how the process is and how to benefit from it. It’s important that you read the FICA guidelines so you’ll know what to expect from your contribution.
It’s also important to check your Social Security and Medicare if your employer is really paying for these. FICA is truly helpful for the working class but it will not be that helpful if your Social Security and Medicare are not regularly paid in the first place.