F.I.C.A. is an abbreviation for the Federal Insurance Contributions Act. Some people call it the Social Security tax. Some call it the payroll tax. The Act requires employers to withhold taxes from your paycheck to fund the Social Security program. Your employer also pays a tax equal to the amount withheld from employee earnings. In 2017, both you and your employer each pay 6.2% on earnings up to $127,200.00. (You and your employer each pay an additional 1.45% on all earnings for Medicare). If you earn over $127,200.00 in 2017, neither you nor your employer pays the Social Security contribution on the amounts over $127,200.00. The taxable wage amount usually increases each January.
When you work and pay Social Security taxes, you earn Social Security credits. Credits can count toward your retirement benefits and can qualify you and your family for disability and survivors insurance. In addition, when you pay Medicare taxes, you’re earning Medicare protection that can be available to you when you reach age 65, or sooner if you have a qualifying disability.
Social Security’s benefits can include:
- Retirement benefits paid each month to retired workers as early as age 62.
- Disability benefits paid each month to workers of all ages who have a severe disability. In some cases, a young worker may qualify for a disability benefit with as little as one and one-half years of work.
- Family benefits paid each month to the spouse and children of retired or disabled workers.
- Survivors benefits paid each month to the widow or widower and children of a deceased worker. In some cases, the family of a young deceased worker can receive these benefits even if the worker had as few as one and one-half years of work.
- Medicare, which helps with hospital bills and provides limited coverage for skilled nursing facility stays and hospice care. Medicare can also cover doctors’ services and prescription drugs.
The current Social Security system works like this: when you work, you pay taxes into Social Security. We use the tax money to pay benefits to:
- People who have already retired;
- People who are disabled;
- Survivors of workers who have died; and
- Dependents of beneficiaries.
Social Security covers an estimated 165 million workers. The program pays benefits to about 40 million retired workers, 9 million workers with disabilities, and 6 million survivors of workers who have died. It also helps about 5 million dependent family members.
When will you stop paying F.I.C.A.? When you stop working. Even when you are retired or disabled and receive a Social Security benefit, if you continue to work, you will pay the FICA tax. We will review your record each year you work to see if the most recent year of earnings is higher than the lowest of the years we used to figure your benefit. If so, your additional work and payment of FICA taxes has increased your monthly benefit amount and your monthly payment will increase.