What Is The Fica Payroll Tax?

The FICA payroll tax is the deduction taken from income as a result of the Federal Insurance Contributions Act that requires employers and employees to contribute to Social Security and Medicare.

You may have noticed that the FICA payroll tax deduction on your pay-stub is just under 8% of your income. 6.2% of that amount goes to Social Security and the other 1.45% is contributed to Medicare. The FICA payroll deduction is actually only half of the requirement. Your employer must pay the same amount.

Self-employed individuals are required to pay the full tax, which is 15.3%. If you run a business, you can deduct the "employer" half from your adjusted gross income when you file taxes using the 1040. (Note: This is not an itemized deduction and should not appear on the Schedule C)

This money pays for federal programs, retiree benefits, disability, children of deceased workers, and surviving spouses. The Medicare funds are used for hospital insurance benefits for the elderly.

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