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FICA stands for the Federal Insurance Contributions Act. By federal law, each employer is required to withhold a certain portion of an employee’s wages and send it quarterly to the Internal Revenue Service which, in turn, places them in a government trust fund for retirement and insurance health when you retire, also known as Social Security and Medicare. In addition, your employer must match your contribution, which is 7.65%. Of the total contribution, 12.4% goes to Social Security and the balance to Medicare.
History
Social Security entered into force during the first term of President Franklin Delano Roosevelt. At that time, it was considered a safety net for citizens, but currently represents the total income of 50% of the retired population. In 1965, President Lyndon Johnson signed Medicare into law as part of his “Great Society.” It provides affordable health care to people after their retirement at age 65. Over the years, both the rate and wages subject to FICA have increased.
Meaning
Since Social Security and Medicare became law, retirees in the United States had to rely on their own resources to get ahead. This required routine savings, a quality that most people do not have. Today, the most developed countries in the world have some type of government program for the care of their elderly citizens, providing them with a retirement income and health care.
Considerations
If you are self-employed, you must pay 15.3% of your salary under FICA since you are the employer and the employee at the same time. However, half of that amount, or 7.65%, is deductible as a business expense.
Time frame
Most people consider the retirement age of 65 years. However, under current law, a person can retire at age 62, but his Social Security benefit will be less than if he waited until he was 65 years old. A person becomes eligible for Medicare coverage when they turn 65 and the premiums for that coverage are less than $ 100 per month, much less than what they would pay for private insurance.
Warning
Social Security benefits are only available to people who have worked a minimum of nine natural quarters during their lifetime. People who have not worked for at least that time are not eligible under current rules. On the other hand, Social Security benefits are based on the amount you earned during your working life, so people who just qualify will receive a small benefit.