Grab a pay stub, do you have a deduction from your pay listed as FICA? If so, your payroll department has not made a mistake; rather it is the government getting their portion of your paycheck. ?Just because your company pays you $10.00/hour to work for them does not mean you receive $10/hour nor does the company have an expense of $10 for every hour you work. Let?s break it down.
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What is FICA
FICA stands for the Federal Insurance Contributions Act. It is created out of 2 separate taxes; Social Security taxes and Medicare taxes. For some people; their paystub does not list FICA rather it details Social Security and Medicare as 2 separate items. ?The amount withheld out of your check is only the employee portion of these taxes. ?The employer pays a similar amount on the earnings of the employee. ?The overall FICA percentage (employer + employee) equals the same percentage as Self-Employment tax (SE Tax).
Your payments (and those of your employer on your behalf) contribute to your coverage under both Social Security and Medicare once you meet all of the minimums to receive benefits.?In general, U.S. social security and Medicare taxes apply to payments of wages for services performed as an employee in the United States, regardless of the citizenship or residence of either the employee or the employer.
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Getting a FICA Refund
It is possible to get a refund of part or all of the FICA amount you paid during the year, however FICA is not based on taxable income or on profit. ?It is based on your wages earned and refunds come into play in one of two ways: (1) your employer withheld to much out of your check for either social security or Medicare and (2)?If social security or Medicare taxes were withheld in error from pay that is not subject to these taxes. If you believe a refund is due you will need to request it from your employer.
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What FICA is not
FICA is not federal tax withholding, it is not your union dues, it is not optional, it is not a tax deduction for when you itemize. ?There is an up side.?The Social Security tax is withheld from the employee?s gross wages until the employee?s cumulative wages for the year reach the wage base limit. Wages above the wage base limit are not subject to Social Security tax withholding. However, there is no wage base limit for Medicare tax; all covered wages are subject to Medicare tax. In 2010 and 2011 that limit is $106,800.
Disclaimer: Under Circular 230 no part of this posting may be used to avoid paying taxes which are due. Please consult a qualified tax professional for guidance related to your specific circumstances. You can, however, contact us directly for specific answers to specific questions as Finance Diva does hold a PTIN number.
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Source: http://www.financediva.com/what-is-fica
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