What does FICA stand for?
FICA stands for the Federal Insurance Contributions Act. The historical past of the act reverts again to the yr 1935, when the federal government carried out the social safety program. A provision to incorporate social safety taxes was included on this act. However, as a result of issues over the constitutionality of the 1935 act, there have been amendments made and the availability for accumulating social safety taxes was moved to the Internal Revenue Code in 1939. At this time it was renamed the Federal Insurance Contributions Act.
What is FICA precisely?
The Federal Insurance Contributions Act authorizes the IRS to gather taxes for the good thing about the social safety program. Intuitively, we would consider these taxes as social safety taxes, however extra generally they’re known as FICA taxes. These FICA taxes function deposits into the federal social insurance coverage program we consider immediately as Social Security.
According to FICA, you could contribute 12.four % of your earned revenue as much as the predetermined restrict of contributions, and one other 2.9 % should be contributed to Medicare. It is vital to notice that there is no such thing as a earnings restrict on the Medicare portion of the tax, and thus in apply one is taxed 2.9 % of all earned revenue, no matter your complete revenue stage.
For these working for hourly wages the tax ranges are completely different. Hourly workers contribute 6.2 % for Social Security and 1.45 % for Medicare. Hopefully you seen that that is simply half of the usual charges. There is sweet purpose for this as your employer is required to pay the opposite half of the speed for Social Security and Medicare contributions. In different phrases, for these working at hourly wages, the employer should match the worker contributions.
How would you spend your FICA?
Let’s think about we dwell in an ideal world, and we do not have to pay taxes. That means no extra contributions to FICA. Now, after the thrill settles down we should determine what to do with our further revenue. Let’s faux we work an element time job, as a result of we’re nonetheless finding out to get our diploma in economics. Fortunately, now we have a good job paying $11 bucks an hour helping an up and coming lawyer. Typically, we put in a 25 hour work week, that means we make about $275 every week. That is strictly $1100 {dollars} each month. If we made $1100 each month, the FICA taxes we might usually contribute would break down like this:
Social Security: $1100 X 6.2% = $68.20
Medicare: $1100 X 1.45% = $15.95
$84.15
So by not having to pay taxes, notably FICA, we might enhance our money circulate by $84.15 every month. Now the enjoyable begins. What are the methods we might spend our hard-earned money. I do know what I’d do. I’d start by signing a lease settlement with TiVO for considered one of their in style digital video recording choices. With this contract, I allocate $12.95 of my financial savings every month to the TiVO service. To complement my new DVR, I’d go forward and splurge on the very best cable TV service within the space. I estimate the price would are available in round $50 a month. As a school scholar I’d doubtless be coerced into filling the music void in my life by signing up for an all you possibly can eat digital music subscription service, operating roughly $9.95 a month. Just like that I’m solely left with about $10 a month, which might simply be spent seeing a one or two films each month.
Snap Back to Reality
Well, sadly life shouldn’t be that simple. We do should pay FICA, and the contributions we make go a good distance in bettering the residing circumstances of others. So for now, plan on paying these FICA taxes, or ought to I say contributions.
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