October 9, 2014 Admin | October 9, 2014 What is the FICA percentage that is taken out of your paycheck? How can you avoid paying FICA?
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FICA is taken out of your pay at a rate of 7.45% for the employee. The employer covers the other half unless you are self employed then you have to cover 14.9% for FICA. You pay the social security part up to $117,000 and you always pay the medicare on earned income and an extra .9% on income over $200000. You can avoid paying FICA through passive income, such as money from stocks, bonds or royalties. That money from your investments avoid FICA even if its outside of a tax shelter.
You were mighty close on this one, Garrett. Let’s review.
The FICA percentage per employee is 7.65%. That is 6.2% for Social Security and 1.45% for Medicare. As Garrett stated, the employer matches it unless the individual is self-employed, then they cover the whole amount. They will be given a tax credit on their tax return to reimburse them for half of the withholding.
Passive income (money earned outside of a job primarily) eliminates FICA from being taken out of your money earned. It is important as early in life as possible to start investing in those no-load index mutual funds that own stocks and bonds. Gradually, the income they produce can lead you to financial freedom, all the while reducing the amount of tax owed to the federal government.