What Is FICA

FICA is abbreviated form of Federal Insurance Contribution Act. This act was passed in 1930 to impose FICA tax on government employees. It is a kind of tax implemented by a federal government for social welfare. This tax is applied over employees as well as employers of United States government as an employment tax. The amount collected by this tax is used by the government to uplift the poor condition of weaker group of the society. The retired persons, physically disable and handicapped and their children are benefitted by that amount. Actually the amount of tax is also beneficial for the persons undergoing tax collection because they would be paid back the amount as a retiree in turn. Thus, it is a kind of social security deposit system.

The calculation of tax on the earning of a person is done on the basis of regressive system. It does mean that the amount of tax per annum will gradually decrease according to the increased amount of total deposited taxation. This kind of employment tax cannot be implemented over the income of investment of the taxpayer. There are also some special conditions for the payment of Federal Insurance Contribution Act tax:-

  • The amount of tax for every person is not same while it is based on the income per annum of the employer or employee.
  • The tax is subjected to be imposed over a fix wage base limit.
  • If a person leaves job from any institution under an employer, it will be responsible to pay the amount of annual FICA tax if it has already earned the amount equivalent to the wage base limit under that employer. The new employer has no right to implement withhold tax on that employee till the time it is paying FICA tax to the old employer.
  • If any person has been committed over payment for social security due to any reason, he or she may apply a request to the government to include that amount as paid tax during filing the federal income tax return. The reason of over payment of tax can vary such as a person might be undergoing more than one job or the person might have switched to different jobs within a financial year.
  • Students working part time in any educational institution are subjected for exemption of the FICA tax up to a certain time period. This facility can be benefitted by a person till the person is affiliated to the institute with the prior objective of education.

FICA tax is applicable on government workers but this does not mean that those people who are self employed are excluded from social security tax. They undergo the implementation of SE tax under Self Employment Contribution Act.