FICA is another kind of tax you’ll see taken out of your paycheck—wah! wah!—in addition to income taxes.
Named for the Federal Insurance Contributions Act, this tax goes toward the Social Security Trust Fund, which (fingers crossed) will eventually provide you with Social Security and Medicare benefits when you retire. So at least there’s that consolation.
FICA is comprised of a 12.4% Social Security tax and 2.9% Medicare tax. If you’re employed, your employer picks up half of each, and the total 7.65% will be deducted automatically from your paycheck. Those who own their own businesses will owe the full 15.3%.
The Social Security portion of the tax is only assessed on earned income up to $117,000, so once you pass that mark, you’re done paying for the year.
“But you’ll still pay Medicare tax on everything you earn,” says Michael Eisenberg, a certified public accountant in Los Angeles. And as of 2013, individuals making more than $200,000 ($250,000 for joint filers) will also pay a 0.9% Medicare surcharge on any income above those thresholds.