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