Feeling FICA
by Adam Smith
What does FICA stand for?
FICA stands for the Federal Insurance Contributions Act. The history of the
act reverts back to the year 1935, when the government implemented the social
security program. A provision to include social security taxes was included in
this act. However, due to concerns over the constitutionality of the 1935 act,
there were amendments made and the provision for collecting social security
taxes was moved to the Internal Revenue Code in 1939. At this time it was
renamed the Federal Insurance Contributions Act.
What is FICA exactly?
The Federal Insurance Contributions Act authorizes the IRS to collect taxes
for the benefit of the social security program. Intuitively, we might think of
these taxes as social security taxes, but more commonly they are referred to as
FICA
taxes. These FICA taxes serve as deposits into the federal social insurance
program we think of today as Social Security.
According to FICA, you must contribute 12.4 percent of your earned income up
to the predetermined limit of contributions, and another 2.9 percent must be
contributed to Medicare. It is important to note that there is no earnings limit
on the Medicare portion of the tax, and thus in practice one is taxed 2.9
percent of all earned income, regardless of your total income level.
For those working for hourly wages the tax levels are different. Hourly
employees contribute 6.2 percent for Social Security and 1.45 percent for
Medicare. Hopefully you noticed that this is just half of the standard rates.
There is good reason for this as your employer is required to pay the other half
of the rate for Social Security and Medicare contributions. In other words, for
those working at hourly wages, the employer must match the employee
contributions.
How would you spend your FICA?
Lets imagine we live in a perfect world, and we dont have to pay taxes. That
means no more contributions to
FICA .
Now, after the excitement settles down we must decide what to do with our extra
income. Lets pretend we work a part time job, because we are still studying to
get our degree in economics. Fortunately, we have a decent job paying $11 bucks
an hour assisting an up and coming lawyer. Typically, we put in a 25 hour work
week, meaning we make about $275 a week. That is exactly $1100 dollars every
month. If we made $1100 every month, the FICA taxes we would normally contribute
would break down like this:
Social Security: $1100 X 6.2% = $68.20 Medicare: $1100 X 1.45%
= $15.95 $84.15
So by not having to pay taxes, particularly FICA, we would increase our
cash flow by
$84.15 each month. Now the fun begins. What are the ways we could spend our hard
earned cash. I know what I would do. I would begin by signing a lease agreement
with TiVO for one of their popular digital video recording options. With this
contract, I allocate $12.95 of my savings each month to the
http://dishnetworkproducts.com/articles/tivo.php >TiVO service. To
complement my new DVR, I would go ahead and splurge on the best satellite
service in the area. I estimate the cost would come in around $50 a month. As a
college student I would likely be coerced into filling the music void in my life
by signing up for an all you can consume digital music subscription service,
running approximately $9.95 a month. Just like that I am only left with about
$10 more in
cash
flow each month, which could easily be spent seeing one or two movies every
month.
Snap Back to Reality
Well, unfortunately life is not that easy. We do have to pay FICA, and the
contributions we make go a long way in improving the living conditions of
others. So for now, plan on paying those FICA taxes, or should I say
contributions.
Adam Smith is an internet marketer specializing in
affiliate program management for
10Xmarketing.com. More information on
FICA
is available at
OneMinuteMillionaire.com
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