Download FICA and Medicare Payroll Tax

Payroll Unit
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Topic: FICA and Medicare
Payroll Deductions
FICA and Medicare Payroll Tax
• FICA
• Stands for Federal Insurance Contribution Act
• Provides benefits for retired workers and their dependents
• Also provides benefits for disabled workers and their dependents
• Medicare
• Government service that provides healthcare for:
• Senior Citizens
• Disabled U.S. Citizens
FICA and Medicare Payroll Tax
• Who has to pay FICA/Medicare taxes?
• All employees must pay this tax except:
1. Any student that works for the school he/she attends
• Student FICA Exemption
• During the academic year, students who are enrolled for six or more credits and
who are working on campus are exempt from FICA (Social Security and
Medicare) deductions.
2. Foreign diplomats
3. Non-resident alien on a temporary visa
FICA and Medicare Payroll Tax
• How are FICA and Medicare taxes calculated
• FICA: 6.2% of income paid by employee. 6.2% of income paid by
employer
• What about self-employed workers?
• FICA is capped in 2016 at $118,500 (no increase from last year)
• Medicare: 1.45% of taxable gross
• There is no income cap on Medicare
FICA and Medicare Payroll Tax
• The Good News:
• FICA and Medicare are “pre-tax” deductions.
• The amount someone pays in FICA and Medicare taxes will not be counted as income in
that year.
• Basically you will not have to pay federal or state taxes on these amounts (doubletaxation).
• The Very Good News (hopefully):
• We will all eventually collect social security benefits
• Current average monthly payment is $1,221. ($14,000 per year)
Problems With Social Security
• In 2016: Nearly 60 million retirees, disabled workers, spouses and
children get monthly Social Security payments
• By 2035, that number that is projected to grow to 90 million receiving
benefits.
• About 168 million workers currently pay Social Security taxes
• In 1960, there were more than five workers for every person receiving
Social Security. Today there are fewer than three. In 20 years, there
will be about two workers for every person getting benefits.