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Encyclopedia > Federal Insurance Contributions Act tax
Taxation in the United States

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FICA may stand for: Federal Insurance Contributions Act tax Federation of International Cricketers Associations International Capoeira Angola Foundation (Portuguese: Fundacao International de Capoeira de Angola) Category: ... Taxation in the United States is a complex system which may involve payment to at least four different levels of government. ... The Great Seal of the United States, obverse side. ... Federal courts Supreme Court Circuit Courts of Appeal District Courts Elections Presidential elections Midterm elections Political Parties Democratic Republican Third parties State & Local government Governors Legislatures (List) State Courts Local Government Other countries Atlas  US Government Portal      Politics of the United States takes place in a framework of a presidential...


Federal taxation
History
Internal Revenue Service
Tax Court  ·   Tax forms
Income tax  ·   Payroll tax
Alternative Minimum Tax
Estate tax  ·   Excise tax
Gift tax  ·   Corporate tax
Capital gains tax
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The Federal Insurance Contributions Act (FICA) tax is a United States payroll (or employment) tax[1] imposed by the federal government on both employees and employers to fund Social Security and Medicare—federal programs that provide benefits for retirees, the disabled, and children of deceased workers. Social Security benefits include old-age, survivors, and disability insurance (OASDI); Medicare provides hospital insurance benefits. Taxation in the United States is a complex system which may involve payment to at least four different levels of government. ... Tax rates around the world Tax revenue as % of GDP Part of the Taxation series        The history of taxation in the United States began when it was composed of colonies ruled by the British Empire, French Empire, Spanish Empire. ... Seal of the Internal Revenue Service Tax rates around the world Tax revenue as % of GDP Part of the Taxation series        “IRS” redirects here. ... Seal of the United States Tax Court. ... Seal of the Internal Revenue Service Tax forms in the United States are used by taxpayers and tax-exempt organizations to report financial information to the Internal Revenue Service (IRS). ... Tax rates around the world Tax revenue as % of GDP Part of the Taxation series        The federal government of the United States imposes a progressive tax on the taxable income of individuals, corporations, trusts, decedents estates, and certain bankruptcy estates. ... The Federal Insurance Contributions Act (FICA) tax, a kind of payroll tax, is a United States employment tax imposed in an equal amount on employees and employers to fund federal programs for retirees, the disabled, and children of deceased workers. ...        Alternative Minimum Tax (AMT) is a tax system that is part of the federal income tax system in the United States. ...        The estate tax in the United States is a tax imposed on the transfer of the taxable estate of a deceased person, whether such property is transferred via a will or according to the state laws of intestacy. ...        Look up Excise tax in the United States in Wiktionary, the free dictionary. ... Inheritance tax, also known in some countries outside the United States as a death duty and referred to as an estate tax within the U.S, is a form of tax levied upon the bequest that a person may make in their will to a living person or organisation. ...        Corporate tax in the United States is a tax on the taxable income of a C corporation or an entity taxed as a C corporation. ... Tax rates around the world Tax revenue as % of GDP Part of the Taxation series        In the United States, individuals and corporations pay income tax on the net total of all their capital gains just as they do on other sorts of income, but the tax rate for individuals is... Taxation in the United States is a complex system which may involve payment to at least four different levels of government. ... State income tax is an income tax in the United States that is levied by each individual state. ... Tax rates around the world Tax revenue as % of GDP Part of the Taxation series        A sales tax is a tax on consumption and is normally a certain percentage that is added onto the price of goods or services that are purchased. ... Tax rates around the world Tax revenue as % of GDP Part of the Taxation series        A use tax is a type of excise tax levied in the United States. ... Property tax, millage tax is an ad valorem tax that an owner of real estate or other property pays on the value of the property being taxed. ... State tax levels indicate both the tax burden and the services a state can afford to provide residents. ... Tax reform is the process of changing the way taxes are collected or managed by the government. ... Throughout this article, the unqualified term dollar and the $ symbol refer to the United States dollar. ... A flat tax, also called a proportional tax, is a system that taxes all entities in a class (typically either citizens or corporations) at the same rate (as a proportion on income), as opposed to a graduated, or progressive, scheme. ... Tax protester arguments are a number of theories that deny that a person has a legal obligation to pay a tax for which the government has determined that person is liable. ... Tax protesters in the United States make a number of statutory arguments that the assessment of the income tax in the United States violates the statutes enacted by the United States Congress and signed into law by the President. ... Tax protester conspiracy arguments are arguments raised by tax protesters that assert that the imposition of the income tax in the United States is the result of some kind of illicit conspiracy. ... Image File history File links This is a lossless scalable vector image. ... Image File history File links This is a lossless scalable vector image. ... 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Social Security in the United States is a social insurance program funded through dedicated payroll taxes called FICA (Federal Insurance Contributions Act). ... President Johnson signing the Medicare amendment. ... Look up disability in Wiktionary, the free dictionary. ... Insurance, in law and economics, is a form of risk management primarily used to hedge against the risk of a contingent loss. ... Social Security, in the United States, currently refers to the Federal Old-Age, Survivors, and Disability Insurance (OASDI) program. ...

Contents

How the tax is calculated

Overview

The Center on Budget and Policy Priorities states that three-fourths of taxpayers pay more in payroll taxes than they do in income taxes.[2] The FICA tax is considered a regressive tax on income (with no standard deduction or personal exemption deduction) and is imposed (for the year 2007) only on the first $97,500 of gross wages. The tax is not imposed on investment income (such as interest and dividends). The Center on Budget and Policy Priorities (CBPP) describes itself as a policy organization . ... Tax rates around the world Tax revenue as % of GDP Economic policy Monetary policy Central bank   Money supply Fiscal policy Spending   Deficit   Debt Trade policy Tariff   Trade agreement Finance Financial market Financial market participants Corporate   Personal Public   Banking   Regulation        A regressive tax is a tax imposed so that the tax...


"Regular" employees (most wage-earners)

For 2007, the employee's share of the Social Security portion of the tax is 6.2% of gross compensation up to a limit of $97,500 of compensation. This limit, known as the Social Security Wage Base, goes up each year based on average national wages and, in general, at a faster rate than the Consumer Price Index (CPI-U). The employee's share of the Medicare portion is 1.45% of wages with no limit. The employer is also liable for separate 6.2% and 1.45% Social Security and Medicare taxes, respectively, making the total Social Security tax 12.4% and the total Medicare tax 2.9% of wages. (Self-employed people are responsible for the entire FICA percentage of 15.3% (= 12.4% + 2.9%), since they are both the employer and the employed; however, see the section on self-employed people for more details.) For the OSADI or Social Security system, the SSWB or the Social Security Wage Base is the maximum earned income or upper threshold on which a wage earners FICA or Social Security tax may be based. ... It has been suggested that this article be split into multiple articles accessible from a disambiguation page. ...


If a worker starts a new job halfway through the year and has already earned the wage base limit for Social Security, the new employer is not allowed to stop withholding it until the wage base limit has been earned with them. There are some cases, such as a successor-predecessor transfer, in which the payments that have already been withheld can be counted toward the year-to-date total. For the album by the Kaiser Chiefs see Employment (album) Employment is a contract between two parties, one being the employer and the other being the employee. ... In the US, this refers to a deduction from an employees salary by an employer for federal, state and local tax liabilities. ...


If a worker has overpaid toward Social Security by having more than one job or by having switched jobs during the year, that worker will get a refund when they file their Federal income tax return. In the United States, taxpayers will get a tax refund, a refund on their U.S. income tax, if the tax they owe is less than the sum of: The total amount of refundable tax credits that they claim. ... Tax rates around the world Tax revenue as % of GDP Part of the Taxation series        The federal government of the United States imposes a progressive tax on the taxable income of individuals, corporations, trusts, decedents estates, and certain bankruptcy estates. ...


Self-employed people

A tax similar to the FICA tax is imposed on the earnings of self-employed individuals, such as independent contractors and members of a partnership. This tax is imposed not by the Federal Insurance Contributions Act but instead by the Self-Employment Contributions Act of 1954, which is codified as Chapter 2 of Subtitle A of the Internal Revenue Code, 26 U.S.C. § 1401 through 26 U.S.C. § 1403 (the "SE Tax Act"). Under the SE Tax Act, self-employed people are responsible for the entire percentage of 15.3% (= 12.4% [Soc. Sec.] + 2.9% [Medicare]); however, the 15.3% multiplier is applied to 92.35% of the business's net earnings from self-employment, rather than 100% of the gross earnings; the difference, 7.65%, is half of the 15.3%, and makes the calculation fair in comparison to that of regular (non-self-employed) employees. It does this by adjusting for the fact that employees' 7.65% share of their SE tax is multiplied against a number (their gross income) that does not include the putative "employer's half" of the self-employment tax. In simpler words, it makes the calculation fair because employees don't get taxed on their employers' contribution of the second half of FICA, therefore self-employed people shouldn't get taxed on the second half of the self-employment tax. Similarly, self-employed people also deduct half of their self-employment tax (schedule SE) from their gross income on the way to arriving at their adjusted gross income (AGI). Again, this evens the playing field for self-employed persons in comparison to regular employees, who don't pay general income tax on their employers' contribution of the second half of FICA, just as they didn't pay FICA tax on it either.[3][4] The examples and perspective in this article or section may not represent a worldwide view. ... An independent contractor is a person or business which provides goods or services to another entity under terms specified in a contract. ... A partnership is a type of business entity in which partners share with each other the profits or losses of the business undertaking in which all have invested. ... The Internal Revenue Code (or IRC) (more formally, the Internal Revenue Code of 1986, as amended) is the main body of domestic statutory tax law of the United States organized topically, including laws covering the income tax (see Income tax in the United States), payroll taxes, gift taxes, estate taxes... The Internal Revenue Code (or IRC) (more formally, the Internal Revenue Code of 1986, as amended) is the main body of domestic statutory tax law of the United States organized topically, including laws covering the income tax (see Income tax in the United States), payroll taxes, gift taxes, estate taxes...


These calculations are made on Schedule SE: Self-Employment Tax, although that is not readily apparent to novice self-employed taxpayers, owing to the schedule's rather opaque name, which makes it sound like it is part of the general federal income tax. Some taxpayers have complained that Schedule SE's title should be changed to something such as "Self-Employment FICA Tax", so that its separateness from the general income tax is apparent,[5], perhaps not realizing that the SE tax is not imposed by the Federal Insurance Contributions Act (FICA) at all, and that neither SE taxes nor FICA taxes are "income taxes" imposed under Chapter 1 of the Internal Revenue Code.


Exemption for certain full-time students

A special case in FICA regulations includes exemptions for student workers. Students enrolled full-time in a university and working part-time for the same university are exempted from FICA payroll taxes, so long as their relationship with the university is primarily an educational one.


History

Prior to the Great Depression, these economic problems were great hazards to working-class Americans: For other uses, see The Great Depression (disambiguation). ...

  • The U.S. had no federal-government-mandated retirement savings; consequently, for many workers, the end of their work careers was the end of all income.
  • Similarly, the U.S. had no federal-government-mandated disability income insurance to provide for citizens disabled by injuries (of any kind—work-related or non-work-related); consequently, for most people, a disabling injury meant no more income (since most people have little to no income except earned income from work).
  • In addition, there was no federal-government-mandated disability income insurance to provide for people unable to ever work during their lives, such as anyone born with severe mental retardation.
  • Finally, the U.S. had no federal-government-mandated health insurance for the elderly; consequently, for many workers, the end of their work careers was the end of their ability to pay for medical care.

In the 1930s, the New Deal introduced Social Security to rectify the first three problems (retirement, injury-induced disability, or congenital disability). It introduced the FICA tax as the means to pay for Social Security. This page is a candidate for speedy deletion. ... This page is a candidate for speedy deletion. ... Mental retardation is a term for a pattern of persistently slow learning of basic motor and language skills (milestones) during childhood, and a significantly below-normal global intellectual capacity as an adult. ... The New Deal was the title President Franklin D. Roosevelt gave to the series of programs he initiated between 1933 and 1938 with the goal of providing relief, recovery, and reform (3 Rs) to the people and economy of the United States during the Great Depression. ... Social Security in the United States is a social insurance program funded through dedicated payroll taxes called FICA (Federal Insurance Contributions Act). ...


In the 1960s, Medicare was introduced to rectify the fourth problem (health care for the elderly). The FICA tax was increased in order to pay for this expense. President Johnson signing the Medicare amendment. ...


Criticism

Role of government

The FICA tax funds social services that are generally considered a safety net for disabled people and retired people. The tax forces citizens to do two things that many people often choose not to do for themselves until too late: buy insurance against risks and save for retirement. The lack of insurance and retirement money would have little effect on some people (that is, relatively wealthy people, or non-wealthy people who remained non-disabled throughout their working careers, then died soon after retirement). However, the lack of insurance and retirement money would predictably lead to poverty among many other people (that is, non-wealthy people who suffered disability, or non-wealthy people who remained non-disabled throughout their working careers, then lived many years after retirement).


One critique of the system is that working people are forced to contribute to these services—that these services should not be mandated by law, and that the wisdom of using authority of government to force the funding of such programs is debatable. If left to their own devices, some people would fail to buy adequate insurance or save for retirement. Although this would lead to poverty among some fraction of the population, critics argue that the ideal of individual freedom allows one to make such choices.


Other critics do not question that the government should mandate the existence of compulsory insurance and retirement savings, but they don't agree that the government itself should run the programs. They argue that the government should simply supply the mandate and let commercial institutions supply the services, allowing the advantages of markets to operate. An analogy is automobile insurance; although some states mandate that drivers have automobile insurance, the state government itself is not the insurance company. Commercial companies supply the service, compete with each other, and are motivated by profit. This method is considered preferable, by some free market advocates, under the theory that competition and profit, as market forces, motivate companies to operate properly and efficiently. Some Americans, therefore, feel that the Social Security and Medicare programs could benefit from following the model of 'government-mandates-but-industry-supplies'. Per this argument, the programs could be implemented by continued collection of the FICA tax, but also of giving workers choices about which insurance company and investment methods they use. A free market is an idealized market, where all economic decisions and actions by individuals regarding transfer of money, goods, and services are voluntary, and are therefore devoid of coercion and theft (some definitions of coercion are inclusive of theft). Colloquially and loosely, a free market economy is an economy...


Recent debates in Congress center on citizens' choice of where to invest their social security funds, as government returns on the levied investment yield much smaller returns than would be gained by allowing their select investment in the private market. Some people contend that putting such crucial public programs in private hands would make said public programs vulnerable to the greed and whims of private entrepreneurs. In this argument, an entrepreneur who finds the citizen-consumer's interest conflicting with his-her own corporate profit may sacrifice the public interest in favor of private profit. Type Bicameral Houses Senate House of Representatives President of the Senate President pro tempore Dick Cheney, (R) since January 20, 2001 Robert C. Byrd, (D) since January 4, 2007 Speaker of the House Nancy Pelosi, (D) since January 4, 2007 Members 535 plus 4 Delegates and 1 Resident Commissioner Political...


Regressive

The Social Security component of the FICA tax is generally considered regressive, meaning the effective tax rate regresses (decreases) as income increases. The Social Security component is actually a flat tax for wage levels under the Social Security Wage Base (see "Regular" employees above). But since no tax is owed on wages above the Wage Base limit, the tax rate effectively declines as wages increase beyond that limit. In other words, for wage levels above the limit, the absolute dollar amount of tax owed remains constant; since this number (the numerator) remains constant while the denominator (the wage level) increases, the effective tax rate steadily decreases as wage levels increase beyond the Wage Base limit. Tax rates around the world Tax revenue as % of GDP Economic policy Monetary policy Central bank   Money supply Fiscal policy Spending   Deficit   Debt Trade policy Tariff   Trade agreement Finance Financial market Financial market participants Corporate   Personal Public   Banking   Regulation        A regressive tax is a tax imposed so that the tax... A flat tax, also called a proportional tax, is a system that taxes all entities in a class (typically either citizens or corporations) at the same rate (as a proportion on income), as opposed to a graduated, or progressive, scheme. ...


Some critics contest this classification.[citation needed] They argue that since Social Security benefits are eventually returned to taxpayers, with interest, in the form of Social Security benefits, the regressiveness of the tax is effectively negated—i.e., the taxpayer gets back what he or she put into the Social Security system. Furthermore, Social Security benefits are returned "progressively"—i.e., individuals with lower lifetime average wages receive a larger benefit (as a percentage of their lifetime average wage income) than do individuals with higher lifetime average wages. This means that, in the view of the critics, the net effect of the Social Security system is progressive.[citation needed] A counter-argument to this criticism is that the criticism assumes that every individual will live long enough (or be disabled long enough) to receive a complete return of his or her Social Security contributions. If a large proportion do not, than a large portion of the tax remains unreturned, and the tax remains regressive.[citation needed]


See also

A cafeteria plan is a type of employee benefit plan offered in the United States pursuant to Section 125 of the Internal Revenue Code. ... Throughout this article, the unqualified term dollar and the $ symbol refer to the United States dollar. ... Form W-2 is used in the United States income tax system to report wages paid to employees and the taxes withheld from them. ... Tax rates around the world Tax revenue as % of GDP Economic policy Monetary policy Central bank   Money supply Fiscal policy Spending   Deficit   Debt Trade policy Tariff   Trade agreement Finance Financial market Financial market participants Corporate   Personal Public   Banking   Regulation        An income tax is a tax levied on the financial income... UK Income Tax and National Insurance (2005–2006) UK Income Tax and National Insurance as a % of Salary (2005–2006) National Insurance is a system of taxes, and related social security benefits, that has operated in the United Kingdom since its introduction in 1911, and wider extension by the government... In the United States, a credit score is a number typically between 300 and 850, based on a statistical analysis of a persons credit files, to represent the creditworthiness of that person, which is the likelihood that the person will pay his or her bills. ...

References

  1. ^ The FICA tax is imposed under the Federal Insurance Contributions Act, which is codified as 26 U.S.C. ch.21
  2. ^ Studies Shed New Light on Effects of Administration's Tax Cuts by David Kamin and Isaac Shapiro, Center on Budget and Policy Priorities, Revised September 13, 2004
  3. ^ I am self-employed. How do I pay Social Security tax?. Social Security Administration. Retrieved on April 28, 2007.
  4. ^ Self-Employment Tax. Internal Revenue Service. Retrieved on April 28, 2007.
  5. ^ http://answers.google.com/answers/threadview?id=493077 A discussion in which self-employed people helped each other make sense of the tax universe

The Internal Revenue Code (or IRC) (more formally, the Internal Revenue Code of 1986, as amended) is the main body of domestic statutory tax law of the United States organized topically, including laws covering the income tax (see Income tax in the United States), payroll taxes, gift taxes, estate taxes... is the 256th day of the year (257th in leap years) in the Gregorian calendar. ... Year 2004 (MMIV) was a leap year starting on Thursday of the Gregorian calendar. ... is the 118th day of the year (119th in leap years) in the Gregorian calendar. ... Year 2007 (MMVII) is the current year, a common year starting on Monday of the Gregorian calendar and the AD/CE era. ... is the 118th day of the year (119th in leap years) in the Gregorian calendar. ... Year 2007 (MMVII) is the current year, a common year starting on Monday of the Gregorian calendar and the AD/CE era. ...

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