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