What Are FICA Wages?

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In the U.S., if you work in a job subject to Social Security taxes, your paycheck shows a deduction called FICA. This abbreviation refers to the Federal Insurance Contributions Act, which gives the national government the authority to collect these taxes. Your FICA wages are the portion of your income subject to these taxes.

History of FICA

  • The Great Depression created the necessity for federal government involvement in social welfare. Congress passed the Social Security Act, which President Franklin D. Roosevelt signed Aug. 14, 1935. It established retirement benefits and unemployment insurance, as well as assistance for the blind. In 1939, Congress revised the law and added dependent and survival benefits. At this time, the Social Security tax law became the Federal Insurance Contribution Act, or FICA. Subsequent laws have expanded the coverage and begun the process of raising the normal retirement age to 67.

FICA Contribution Base

  • Every year, the Social Security program collects taxes on a maximum amount of earnings for each employee for the old-age, survivors and disability insurance program. In addition, your Social Security deduction includes a portion for hospital insurance. The OASDI base income limit frequently goes up, but not necessarily every year. For example, in 2008, the limit came to $102,000. In 2009 it increased to $106,800, but in 2010 and 2011, the tax base for OASDI has remained at $106,800. Since 1993, your entire earnings have come under hospital insurance taxes.

Tax Rates

  • Between 1990 and 2010, the individual paid 6.2 percent and the employer paid another 6.2 percent of the taxable income for OASDI. You each also paid 1.45 percent for the hospital insurance portion, for a total of 7.65 each. For 2011, a special 2 percent reduction on OASDI gives the employee an effective rate of 4.2 percent on the taxable base, while the employer still pays 6.2 percent for the OASDI portion.

Self-Employed Workers

  • Self-employed workers must pay the employer and employee portions for both the OASDI and hospital taxes. From 1990 through 2010, they paid 12.4 percent in OASDI on their income base and 2.9 percent for the hospital insurance portion, a total of 15.3 percent. As of 2011, they receive the 2 percent reduction of the employee portion, giving them an effective 10.4 percent rate for OASDI portion. They still pay 2.9 percent for the hospital insurance. Since 1990, the self-employed have benefited from a federal income tax deduction to help offset their double FICA tax burden.

Special Considerations

  • If you work for more than one employer, each one may deduct taxes up to the maximum for OASDI. However, the government will apply the maximum income rule to your combined income and refund any overpayment. If you earn more than the taxable base from one employer, the government will stop taking out taxes for OASDI when you reach the maximum amount.

Benefits

  • The government calculates your Social Security benefits based on your work history and earnings. You need at least 10 years of work to qualify for benefits if you were born in 1929 or after. A large income over a longer period will increase your eventual Social Security benefits but only based on the maximum income subject to taxes. You can calculate your expected benefits based on your record at Social Security Online.

References

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