What is FICA and How Does it Work?

Retirement and Disability Payments From YOUR Paycheck

Yep! The federal Government passed a law that you have to pay into an account, that is handled by the government; a certain percentage of your paycheck. It is called FICA.

What is FICA?
FICA stands for Federal Insurance Contribution (tax) Act. Prior to the Great Depression, the following presented difficulties for working-class Americans. A United States federal program of social insurance and benefits developed in 1935. The Social Security program's benefits include retirement income, disability income, Medicare and Medicaid, and death and survivorship benefits. Social Security is one of the largest government programs in the world, paying out hundreds of billions of dollars per year.

Based on the year someone was born, retirement benefits may begin as early as age 62 and as late as age 67. The amount of income received is based on the average wages earned over the worker's lifetime, with a maximum calculable amount of $102,000 as of 2008. Spouses are also eligible to receive Social Security benefits, even if they have limited or non-existent work

The original program was part of President Franklin D. Roosevelt's New Deal plan to lift the U.S. out of the Great Depression. Today, the program is funded through payroll taxes collected by employees and companies; monies are placed into the Social Security Trust Fund and payments are managed by the government along with the Federal Reserve Board.

Prior to the Great Depression, the following presented difficulties for working-class Americans.

* The U.S. had no federal-government-mandated retirement savings; consequently, for those people who had not voluntarily saved money throughout their working lives, the end of their work careers was the end of all income.
* Similarly, the U.S. had no federal-government-mandated disability income insurance to provide for citizens disabled by injuries (of any kind—work-related or non-work-related); consequently, for most people, a disabling injury meant no more income (since most people have little to no income except earned income from work).
* In addition, there was no federal-government-mandated disability income insurance to provide for people unable to ever work during their lives, such as anyone born with severe mental retardation.
* Finally, the U.S. had no federal-government-mandated health insurance for the elderly; consequently, for many people, the end of their work careers was the end of their ability to pay for medical care.

In the 1930s, the New Deal introduced Social Security to rectify the first three problems (retirement, injury-induced disability, or congenital disability). It introduced the FICA tax as the means to pay for Social Security.

In the 1960s, Medicare was introduced to rectify the fourth problem (health care for the elderly). The FICA tax was increased in order to pay for this expense.

The FICA tax funds social services that are generally considered a safety net for disabled people and retired people. The tax forces citizens to do two things that many people often choose not to do for themselves until too late: buy insurance against risks and save for retirement. The lack of insurance and retirement money would have little effect on some people (that is, relatively wealthy people, or non-wealthy people who remained non-disabled throughout their working careers, then died soon after retirement). However, the lack of insurance and retirement money would predictably lead to poverty among many other people (that is, non-wealthy people who suffered disability, or non-wealthy people who remained non-disabled throughout their working careers, then lived many years after retirement).

The Social Security program's benefits include retirement income, disability income, Medicare and Medicaid, and death and survivorship benefits. Social Security is one of the largest government programs in the world, paying out hundreds of billions of dollars per year.

Based on the year someone was born, retirement benefits may begin as early as age 62 and as late as age 67. The amount of income received is based on the average wages earned over the worker's lifetime, with a maximum calculable amount of $102,000 as of 2008. Spouses are also eligible to receive Social Security benefits, even if they have limited or non-existent work.

The original program was part of President Franklin D. Roosevelt's New Deal plan to lift the U.S. out of the Great Depression. Today, the program is funded through payroll taxes collected by employees and companies; monies are placed into the Social Security Trust Fund and payments are managed by the government along with the Federal Reserve Board. The Federal Insurance Contributions Act is currently codified at Title 26, Subtitle C, Chapter 21 of the United States Code

Here's how it works.

You and your employer both contribute a percentage of your income to this tax which is attributed to Social Security and Medicare. Social security is the governmental fund that provides income to retirees, disability, etc. Medicare provides medical insurance coverage to persons over age 65.

The Federal Insurance Contributions Act (FICA) tax is a United States payroll (or employment) tax[1] imposed by the federal government on both employees and employers to fund Social Security and Medicare [2] —federal programs that provide benefits for retirees, the disabled, and children of deceased workers. Social Security benefits include old-age, survivors, and disability insurance (SSDI); Medicare provides hospital insurance benefits. The amount that one pays in payroll taxes throughout one's working career is indirectly tied to the social security benefits annuity that one receives as a retiree.[citation needed] This has led some to claim that the payroll tax is not a tax because its collection is tied to a benefit.[3] The United States Supreme Court decided in Flemming v. Nestor (1960) that no one has an accrued property right to benefits from Social Security.

2008, the employee's share of the Social Security portion of the tax is 6.2% of gross compensation up to a limit of $102,000 of compensation (resulting in a maximum of $6,324.00 in tax). For 2009, the employee's share is 6.2% of gross compensation up to a limit of $106,800 of compensation (resulting in a maximum tax of $6,621.60).[6] This limit, known as the Social Security Wage Base, goes up each year based on average national wages and, in general, at a faster rate than the Consumer Price Index (CPI-U).

(Self-employed people are responsible for the entire FICA percentage of 15.3% (= 12.4% + 2.9%), since they are both the employer and the employed. ( http://www.investopedia.com/terms/f/fica.asp)

Things not noted above

Medicare,retirement and disability are not WELFARE. If you as an individual need medicare or disability, and have a work history in the United States where you have paid taxes, you are entitled to those just as if you had retired after working for 50 years ( yes, 50. If you started working at age 17, you have to reach age 67 to qualify for full retirement). You paid that money in, therefore it is your money. It is not taking charity to access that money that you have paid in yourself by your hard work.

The sad thing about all of this is the hoops that have to be jumped through to get access to YOUR hard earned money. The next blogs will talk about those hoops and just exactly how little of your hard earned money is allowed to you, due to the ridiculously low poverty levels and outrageously complicated mathematical formulas used to compute your eligibility for these programs.