If you make over $200,000 your FICA tax rate for 2013 will soon increase. That’s because under health care legislation the Medicare portion of the FICA tax will increase for wealthy taxpayers. Instead of paying a flat 1.45%, wealthy taxpayers would pay 2.35%.
Wealthy is defined here as a single filer making over $200,000 and married filing jointly a total of $250,000. This is part of health care reform signed into action by the Obama administration.
Also going into effect will be an additional Medicare tax on the wealthy taxpayers. This will go into effect January 1, 2013. The additional Medicare tax will be a 3.8% tax on investment income for the same wealthy taxpaypers. Again, that’s single filers with an Adjusted Gross Income (AGI) over $200,000 and married filing jointly with an AGI over $250,000.
The 2011 FICA Tax Rate is different from most years, and that’s because the OASDI portion of the Social Security tax portion was lowered from 6.2 percent to 4.2 percent. That reduction will go away March 2012.
Usually the FICA tax rate is a flat rate and is the same from year to year. The tax is not affected by the number of withholding exemptions an employee may have. The percentage is taken from the gross wage.
If you are a business owner then the reduction in the 2011 FICA tax rate won’t really affect your bottom line since the reduction is in the employee share of the OASDI portion. But it will affect your accounting and taxes. You will be withholding less from the paychecks of your employees.
The Social Security portion of the 2011 FICA tax rate is still subject to a dollar limit, as in past years. That limit is adjusted every year to keep up with inflation. Each year the limit goes up a few thousand dollars. The limit for the 2011 FICA tax rate was $106,800. That means, after you’ve withheld Social Security on that amount then you don’t have to withhold any more if that employee makes beyond that dollar amount. For 2012, the dollar limit is $110,100. Medicare portion of the 2011 FICA tax rate has no dollar limit. Withhold for every dollar earned.
The FICA tax rate for 2011 is lower because the Social Security percentage take out was reduced. In previous years the FICA rate was 7.65 %. The FICA tax rate for 2011, however, is 5.65%. This is the FICA tax rate paid by employees. The portion paid by theemployer remains the same.
Remember, FICA is actually two separate taxes. It consists of:
- Social Security Tax (OASDI)
- Medicare Tax
Will the Lower FICA Tax Rate Last Beyond 2011?
The 2011 FICA tax rate is lower but the lower rate is temporary. It lasts for the whole tax year of 2011 and the first two months of 2012. The IRS reduced the Social Security portion of FICA by 2 percentage points. This applies to employees and to self-employed workers.
If you get a paycheck, you’ve probably looked at the money taken out of it already and wondered What is FICA?
FICA money goes to retired people
Well if you think about where your money will come from in retirement, you’ve halfway there to understanding what FICA is. FICA stands for the Federal Insurance Contributions Act. That is what funds Social Security and Medicare…federal programs that provide for us in old age.
if you pay fica, then someday you can get social security and health insurance
So basically, the FICA amount taken out of your paycheck goes towards income for retirees. The amount of money a retiree receives out of Social Security depends on how much he or she put into it. So, if you feel bad about that FICA amount missing from your current paycheck, there is some consolation that someday you will be able to draw on the FICA money yourself, after you retire.
what is the fica amount taken out of my paycheck?
FICA goes towards two things, each of which takes a different percentage out of your check:
- Social Security: 12.4% of your earned income goes towards this
- Medicare: 2.9% goes towards this
Unless you work for yourself, you pay half the percentage and your employer pays the other half. If you are self-employed, you pay the full amount yourself.