What is FICA?

business economy

FICA is the acronym for the Federal Insurance Contributions Act. This act mandates that an employer withhold a set percentage of an employee’s salary each pay period. FICA also requires that the employer match the employee’s amount and contribute the money to a government account known as the Social Security Trust Fund. This fund provides retirement income, as well as disability insurance, Medicare, and benefits for survivors.

FICA was the result of the Social Security Act of 1935, proposed by President Franklin D. Roosevelt. The program began collecting taxes and paying benefits in 1937. In 1939, FICA was amended to include widows and orphans of working spouses, as well as elderly people who had not paid into the system.

Originally, Social Security benefits were only available to people who were under 65 and who worked in what was considered commerce and industry. Government employees, medical personnel, lawyers, and agricultural workers were all exempt from FICA, and because they were not required to pay into the fund, they could not collect monies from it. These restrictions have been lifted, and although there are still categories of workers who can opt out of paying into FICA, no one is expressly excluded from participation.

The Social Security Trust Fund, established in 1939, is responsible for collecting the money that is raised through employer/employee contributions required by FICA. The Department of the Treasury is responsible for managing these funds and charged with investing this money in securities backed by the US government. The government is in effect loaning the money to itself, and then using it to finance other projects. The money is repaid when the bonds come due.

Only people who have paid into Social Security through FICA are eligible to receive benefits from the fund. Currently, a person can collect reduced benefits at age 62. Distribution of full benefits is determined by an individual’s birth year. People who were born before 1938 were able to collect full benefits at 65. For those born between 1938 and 1943, the age increases at a rate of two months per year up to the age of 66 for those born in 1943. Retirement age remains 66 for everyone born between 1943 and 1954, and then increases again, up to 67 for those born in 1960 and after.

Originally, Social Security benefits were not taxable. However, in 1983, Congress passed amendments to the Social Security Act that would consider 50% of benefits to be taxable income for beneficiaries with a total income that exceeded an established limit. This amount was increased to 85% in 1993.

Related wiseGEEK articles

Category

New: Discuss this Article

Posted by: anon225
I am receiving severance from previous employer, and will max out my contribution when I receive it. I contacted my new employer in an effort to get them to NOT take out FICA, but they told me they HAD to. Thus, I will be paying too much. How do I resolve this now, or do I have to wait for a refund next year?
Posted by: anon3090
I worked for a company for 10 years. Unknown to me, they did not take out FICA taxes for 8 of those years, when questioned in latter years they alluded that we were independent contractors. We were NOT independent contractors and never hired as such! The work was done daily at their office using their equipment, time cards/clocks, etc. and we were referred to as full time employees. We had no knowledge of the consequences of the company's actions. How can we recoup our monies rightly earned through Social Security retirement benefits and make the employer accountable?!
Posted by: anon3889
I am 75 years young and have been receiving social security since the age of 62. i am now considering taking a part time retail position. Can I justifiably request that FICA be NOT TAKEN OUT?

Posted by: anon3930
The money you are getting now is SURELY more than you have contributed (or has the potential to surpass that amount) You absolutely should contribute. Uncle Sam had no business getting into retirement in the first place, and now that they did, of course it is set on a disastrous course. By the time the consequences hit, you'll be gone and others will be left holding the bag. Do the right thing.
Posted by: anon5266
I have a day job which my company had take out FICA tax in every pay check. I am thinking about have a business on the side or do a day trade on stock or trade on forex exchange.....Do I have to pay more on FICA...seperate from my day job? What is the rule on these matters? Vat Thongsiri
Posted by: anon6448
I was born in 1980, so I'm pretty much guaranteed to die before I ever see a penny of Social Security. I thought retirement was for relaxing after many years of hard work and dedication to the future economic success of our nation. With the increasing age requirements, I will only be able to use social security to pay for my funeral. Not only did I serve in the U.S. Navy, but the government takes a LARGE percent of my pay every day. I'm starting to feel that the costs outweigh the benefits. They should decrease the age requirement so that people will be able to enjoy retirement.
Posted by: anon6890
I recently heard a financial expert on a television show say that if an individual dies before they are able to receive the FICA related benefits, for which they had funds taken out of their paycheck for while they were alive they, their heirs could apply to receive a refund of sorts for their deceased relative's contributions. Is this accurate?
Posted by: cpowell
I feel that it is a shame that we as working Americans are being taxed for everything that we do. They claim that the economy is failing, but as a government you are making it so by taking the hard earned earnings from the people to pay for them to retire or not to be able to retire on the money that we contribute during our lifetime of working. We are taxed to put into these funds and also taxed to get any of it back.

That is a double, no triple standard because even at the end of the tax year we are taxed again on the earnings that we have made and paid during the year.

So why is it that we as people are being charged for everything that we do?

Posted by: lbell
Your current employer should make adjustments to the amount of Social Security tax they withhold. If they don't you can submit Form 843 (available at the IRS's website) to get a refund. You can't claim it as a credit on your income tax though.

The company that you worked for, for 8 years is liable to pay the FICA taxes that they should have all those years. They can ask you to pay your half that they did not withhold, but technically you don't have to. In order to make them pay you will probably have to get a lawyer.

If you are self employed or have a small business you will have to pay FICA taxes. It is called self employment tax. There is an article on this website about it.

You still have to pay FICA taxes even if you are currently collecting social security benefits.

I don't know of any way to get any type of refund for FICA taxes for a deceased relative. You can get survivor benefits if you are the dependent or spouse of the deceased person.

I could not agree more with the statement that we are being taxed too much. I do not enjoy paying for all the people who don't feel like working. And I don't like how the government seems to waste money on useless things.

Posted by: anon12019
My employer currently takes out what they (as employers) are being charged for FICA. They take this percentage out before reporting our income to payroll. Is this legal and/or ethical? It seems they are getting away without paying employer taxes while we (as employees) are being unfairly taxed. Suggestions?
Posted by: lbell
No that is not legal. Your employer should be withholding 6.2% for social security and 1.49% for Medicare. Then they need pay matching amounts to total 15.3%. And they should do that after reporting your income. To report tax fraud to the IRS fill out Form 3949-A available on irs.gov and mail it to Internal Revenue Service

Fresno, CA 93888.


FREE: Subscribe to wiseGEEK

 
    learn more

our strict privacy policy ensures that your email address will be safe



Written by Donna Reynolds

copyright © 2003 - 2008
conjecture corporation