What Is FICA & Medicare?

What Is FICA & Medicare? thumbnail
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FICA is an acronym for the Federal Insurance Contribution Act. It refers to the deductions employers withhold from employee earnings for Social Security. Medicare is the name for the Supplementary Medical Insurance program of the Social Security Act. Medicare was signed July 30, 1965. First enrollments were accepted July 1, 1966. Employers are required by the Social Security Act to contribute the same amounts that employees pay.

  1. FICA Origins

    • The Federal Insurance Contribution Act was signed into law in 1939, It was originally written into Title VIII of the Economic Security Act, the original name of the Social Security Act. During the enactment of the Social Security Act, there were concerns among some members of Congress about the constitutionality of the act. To overcome these objections, Title VIII funding for benefits was transferred to the Internal Revenue Code and renamed the Federal Insurance Contribution Act.

    Medicare Origins

    • Medicare was signed into law by President Lyndon B. Johnson July 30, 1965, as part of the 1965 amendments to the Social Security Act. The original act had two parts. Part A was the insurance for inpatient services. Part B covered outpatient services such as physician office visits and outpatient hospital services. Prescription medication was not covered in the original act.

    FICA Law Changes

    • FICA started as a retirement benefit for people age 65 and over. The original act only covered people that paid the FICA tax. The law was amended in 1939 to cover spouses and minor children of the worker. In 1956, disability benefits were added. In 1972, cost-of-living allowance increases were made automatic effective in 1975. In 1984, Social Security coverage was given to all federal employees, including members of Congress and the Executive Branch.

    Medicare Law Changes

    • n 1965, the Social Security Act was amended to include Medicare coverage for Social Security beneficiaries age 65 and older. Part A coverage was provided free of charge. Part B did have a premium charge that was deducted from Social Security payments. People could decline Part B coverage. In 1972, coverage was extended to disability beneficiaries and end-stage renal disease patients. In 2003, the Medicare Modernization Act was signed by President George W. Bush providing prescription drug coverage.

    FICA Cost Changes

    • From 1937 to 1950 the FICA tax was 1 percent of wages up to $3000. All increases from then on were mandated by law. From 1975 onward, there were provisions for automatic increases based on the average wage index. For 2010, the FICA payment is 6.20 percent of wages on the first $106,800. The maximum FICA tax from 1937 to 1950 was $30. For 2010, the maximum tax is $6,621.60.

    Medicare Cost Changes

    • In 1966, the Medicare tax was 0.35 percent of wages up to the maximum taxable rate of $6,600. In 1991, the tax rate was 1.45 percent up to $125,000. In 1994, Congress removed the earnings tax cap for Medicare taxes. If a person's wages were $500,000, the employer and employee paid 1.45 per cent of $500,000, $7250 each.

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