Tax season is upon us, but the road ahead doesn’t have to feel daunting. We’re breaking down the terms, forms and deadlines you need to know to responsibly file your taxes in 2023 – starting with FICA.
Confused or confounded about the money taken out of your paycheck every week? Wondering what Social Security and Medicare taxes have to do with you? Here’s what to know about the U.S. federal tax.
FICA stands for Federal Insurance Contributions Act; it’s the federal payroll tax.
A total of 7.65% of your gross wages goes to federal taxes. Your employer matches these percentages:
Individuals with earned income of more than $200,000 ($250,000 for married couples filing jointly) pay an additional 0.9% in Medicare taxes.
These taxes from your paycheck fund Social Security and Medicare programs, including retirement, disability, survivors’ and children’s benefits.
No, FICA and Social Security taxes are not the same, but they’re related. Social Security taxes are the 6.2% taken out of your paycheck each month (up to $168,600, the 2024 taxable maximum) while FICA refers to the combination of Social Security and Medicare taxes.
Certain wages are exempt from FICA taxes. For example, FICA taxes do not apply to services performed by employed students, the Internal Revenue Service says. Organizations are deemed a “school, college or university” if their function and the student’s relationship with the employer are primarily educational.
According to the IRS, nonresidents are generally liable for Social Security and Medicare taxes. But these groups of people are exempt from FICA taxes:
Other paid wages exempt from Social Security and Medicare taxes include compensation to:
Self-employed individuals are not exempt from Social Security and Medicare taxes, but they do have a different, higher rate known as “self-employment tax” because there is no employer match. The total tax rate is 15.3%, broken down into two parts:
You can get a refund if your Social Security taxes were withheld in error from exempt pay. You should get a refund in full from your employer, otherwise, you can file a claim with the IRS.
Clare Mulroy is a trending and SEO reporter who covers a range of evergreen topics.
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