October 11, 2013

What is FICA and what does it fund? How much is taken out of an employee’s monthly paycheck? How many credits make you eligible?

3 thoughts on “October 11, 2013”

  1. Alex Christianson says:

    It is the Federal Insurance Contributions Act (FICA) tax. It funds Social Security and Medicare. 6.2% is taken for Social Security and an additional 1.45% is taken for Medicare. Generaly you get 4 credits per year and after 10 year you become eligible with 40 credits.

  2. Katherine Graham says:

    FICA is a tax that comes out of your gross earned income and it funds social security and medicare. 7.65% is taken out of an employee’s monthly paycheck. One way to avoid this tax is building up your passive income (no FICA is taken out of passive income).

  3. Mike Finley says:

    Well done Alex and Katherine. It looks like Alex was 1st by a matter of seconds! Let’s recap.

    FICA funds Social Security and Medicare. It totals 7.65% and is broken down exactly the way Alex described. You need a total of 40 credits to be eligible for social security (there are exceptions) and those credits can be broken up over a lifetime (does not need to be consecutive). Finally, just as Katherine stated, one way to reduce your taxes is to produce passive income (outside of your job). FICA does not come out of passive income.

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