- FICA, or the Federal Insurance Contributions Act, consists of a combination tax --- Social Security and Medicare. Since Social Security is part of the FICA taxes listed on your pay stub, the 2011 reduction impacts your take-home pay, reducing gross deductions from income by 2 percent. Your 2011 FICA obligation totals 5.65 percent of your gross earnings.
- Even though the 2010 legislation reduces employee contributions, it did not include a tax cut for employers. Employers continue to pay the higher employer's share of 6.2 percent for Social Security and 1.45 percent for Medicare, creating a FICA total for employers of 7.65 percent.
- Social Security tax deductions terminate at an earnings limit established by Congress. In 2011, the point at which Social Security tax deductions cease is $106,800. The Medicare tax, however, does not have an income cap. Both you and your employer contribute 1.45 percent each to Medicare for all income earned during the tax year.
- Since self-employed individuals pay both the employee and employer portions of FICA, that amount is also reduced for 2011. As an employee, the self-employed person pays 5.65 percent, and as an employer, he pays 7.65 percent for a total self-employment tax percentage of 13.3 percent. That figure increases to 15.3 percent on January 1, 2012 if Congress makes no changes in the applicable tax law.
- While the 2010 legislation created a 2 percent, across-the-board deduction in Social Security tax collections, the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act did not impact your Social Security payments in retirement. The tax deduction will not adversely affect the Social Security trust fund. Provisions of the law allow for reimbursement of the 2 percent tax reduction from the general fund of the U.S. Treasury to the Social Security trust fund.
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