One of the things most 18 year olds are bound to encounter once they have their first paying job is a curious line on their paystub labeled “FICA.” The deduction won’t come with an explanation but it will mean that a sizable chunk of your paycheck disappears to fund certain government programs. So what is this all about and why do you have to fork over the money?
What is FICA?
Under the Federal Insurance Contributions Act (FICA), 12.4% of everyone’s income up to an annual limit ($113,700) must be paid into Social Security, and an additional 2.9% must be paid into Medicare. If you are working for someone else, you will only pay half the FICA bill, while your employer will handle the rest.
What is Social Security?
Social Security is a federal insurance program that provides benefits to retired individuals. The money raised from FICA taxes primarily goes to providing benefits for those who have reached retirement age. This means that your Social Security taxes go to provide funds for the people who are retired and drawing benefits today. The goal is that when today’s workers retire, the workers at that time will provide the money for them to draw on.
What is Medicare?
Medicare is a national insurance program, administered by the federal government since 1965. The program guarantees access to health insurance for those Americans aged 65 and older as well as some younger people with disabilities.
Can you opt out?
Nice try, but the answer is a resounding no. Many have tried and few have succeeded. The FICA taxes are mandatory and are automatically deducted out of your paycheck by your employer. Unless you belong to a recognized religious sect that is opposed to accepting Social Security benefits, like the Amish,then you’re pretty well stuck.