Question 1

What does FICA stand for?

Accepted Answer

FICA stands for the Federal Insurance Contributions Act, which was established in 1935 to fund Social Security and later expanded to include Medicare.

Question 2

How are FICA taxes divided between employees and employers?

Accepted Answer

FICA taxes are split between employees and employers. For Social Security, employees pay 6.2%, and employers pay 6.2%. For Medicare, both employees and employers each pay 1.45%.

Question 3

Is there a wage limit for FICA taxes?

Accepted Answer

Yes, there is a wage limit for the Social Security tax component. As of 2021, this limit was $142,800. Earnings above this threshold are not subject to the 12.4% Social Security tax. However, there is no wage limit for the Medicare tax.

Question 4

What is the additional Medicare tax?

Accepted Answer

The additional Medicare tax is 0.9% and applies to high-income earners. It comes into play when an individual's income exceeds a certain threshold.

Question 5

How are FICA taxes collected?

Accepted Answer

If you're an employee, your FICA taxes are automatically withheld from your paycheck by your employer. Self-employed individuals must make quarterly estimated tax payments, including their self-employment tax.

Question 6

Can I reduce my FICA tax liability?

Accepted Answer

While it's challenging to eliminate FICA taxes entirely, some strategies, such as earning unearned income or structuring your business income wisely, may help reduce your FICA tax burden. Consult with a tax professional for personalized guidance.

Question 7

Do FICA taxes affect federal income taxes?

Accepted Answer

FICA taxes are separate from federal income taxes. Strategies to reduce federal income taxes, such as deductions and credits, do not apply to FICA taxes.

Question 8

What is the role of FICA taxes in funding Social Security and Medicare?

Accepted Answer