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FICA Taxes - Social Security & Medicare Taxes Explained

FICA Taxes - Social Security & Medicare Taxes Explained

| June 25, 2020
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FICA stands for the Federal Insurance Contributions Act, which is a federal tax that both employees and employers pay throughout the year. FICA includes two types of taxes: Social Security Tax and Medicare tax. The current tax rate for Social Security taxes are 6.2% for both employees and employers, while the tax rate for Medicare is 1.45% for employees and employers.

 

Medicare tax supports the Medicare program, which provides federal health insurance for Americans who are age 65 and up. Both employees and employers pay Medicare tax, while self-employed people pay both the employer and employee portions of Medicare tax (Also known as self-employment tax). The current rate for Medicare is set at 1.45%, the employee’s portion is deducted from their wages while the employer pays their share directly to the IRS. Some employees may also have to pay an additional Medicare tax of 0.9% if they make more than a certain amount each year.

Social Security Tax, on the other hand, pays for disability and federal retirement benefits that assists millions of Americans every year. Similar to Medicare, both employees and employers are required to pay Social Security Tax, and self-employed individuals pay for both the employee and employer share as part of self-employment tax. While the current tax rate for Social Security is set at 6.2%, the employee’s portion is deducted from their wages while the employer pays their share directly to the IRS.

 

This article is not to be taken as tax advice. Due to tax rules changing over time and can vary by location and industry, consult a CPA or tax professional for guidance.

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