What is a FICA?

A lot of people get their pay stubs and see they had their money deducted from them but don’t know why. One of those items appears as “FICA”. It stands for Federal Insurance Contributions Act, 12.40 percent of your earned income up to a certain annual limit must be paid into Social Security, and another 2.90 percent must be paid towards Medicare.

There are no limits on Medicare taxes, so you will still be paying Medicare taxes even after your hit your limit for the Social Security tax. If you are employed by a employer, then you only pay half of the two taxes. The other half is paid by your employer.

If you are self employed, then you need to pay the entire share of the taxes. The good thing is that you are able to deduct half of the self-employment tax as a business expense.

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