Today, we’re going to dive into the light, easy, totally uncontroversial world of taxes. As in, “Who’s FICA? Why’s he getting all my money?”
About once a week, the PayReel office phone rings with someone on the other end of the line referring to the Federal Insurance Contributions Act (FICA) with exactly the same tone you’d expect with a four letter word. We understand. You’re the one who blearily rolled yourself out of your still-warm covers instead of pressing snooze again. You’re the one who (resentfully) learned how to use a crock pot so you’d have a meal (sort of) after your 12-hour workday. You work hard for your money. Why does someone else get to take a big chunk of it while you budget and count pennies for that one sofa that will finally show you’re crushing this adulting thing?
To ease the pain, we’ll start with what FICA is designed to do for you rather than why it gets taken from you. Fair enough?
What FICA means to your future
The idea of taxes is that we get something in return for paying into the system. Tax money goes into funding for programs, infrastructure, roads, etc. It’s not a perfect system, sure, but that’s the idea.
FICA taxes specifically are designed to pay for medicare and social security. That means that when you reach 65, you can start drawing social security checks and have your health costs covered by medicare. For those without a 401K or another retirement fund, this is the one thing that makes it possible for them to retire. Even people with other sources of retirement often find the social security a necessary supplement.
What FICA is and how it works
FICA taxes are required by the federal government. Employees and employers share the financial obligation. The employer deducts the employee’s share (half of the total due) from employee wages and the employer pays the other half itself. The amount comes out of your paycheck before any other deductions, such as health insurance. The social security tax rate is 6.2% on your gross income. This is standard across the board until you hit a higher tax bracket, at which point, you contribute more. The amount you can draw from social security directly correlates with how much you put in. So if you put more in, you get more out.
The medicare portion is 1.45% and also works on a sliding scale for those who make 200K+. This is a federal health insurance program you can start drawing on when you’re 65.
What FICA isn’t
This has nothing to do with your W-4s. W-4s have to do with federal income taxes. The way you fill out your W-4 tells your employer the correct amount of said taxes to withhold from your paycheck, based on your filing status and income bracket. The IRS recommends filling out a new W-4 any time your personal or financial situation changes. FICA, on the other hand, has to do with your social security and Medicare and there is no such form for FICA because you cannot claim exemption.
The bottom line
When everything works as it’s designed to, FICA is not the bad guy. It is an important part of each generation’s future.
At PayReel, we minimize the time and effort it takes to get you ready for your project. Rely on PayReel to assume all of the risk associated with worker classification and get back to the business at hand. We make sure everyone gets paid quickly and easily, and have Client Relationship Managers on call around the clock to answer your questions. All you have to do is call 303-526-4900 or email us. The PayReel team makes live event, corporate media, and brand management payroll easier, faster, and seamless.