The Federal Insurance Contribution Act (FICA) ( ) is a United States federal salary (or employment) contribution directed to employees and employers to fund Social Security and Medicare - federal programs that benefit the pensioners, the disabled, and the children of the deceased workers.
Insurance also provides funds for health care systems for institutions that provide health services for workers who do not have health insurance and are unable to pay for health care. Social Security Benefits including old age, survivor and disability (OASDI) guarantees; Medicare provides hospital insurance benefits for the elderly. The amount a person pays in the payroll tax throughout his or her career is indirectly related to the social security benefit allowance a person receives as a pensioner. As a result, Kevin Hassett writes that FICA is not a tax because his collection is directly related to the benefits that are entitled to be collected in the future. (Insurance). The United States Supreme Court ruled at Flemming v. Nestor (1960) that no one has an accrued property rights for the benefits of Social Security. The Federal Insurance Contribution Act is currently codified in Title 26, Subtitle C, Chapter 21 of the United States Code.
Video Federal Insurance Contributions Act tax
Calculation
Overview
The Budget and Policy Priorities Center states that three-quarters of taxpayers pay more in payroll taxes than on income taxes. FICA taxes are regarded as a regressive tax on income without a standard deduction or a private exclusion cut. The Social Security section of the tax is levied on the first $ 117,000 in 2014, $ 118,500 in 2015 and 2016, $ 127,200 in 2017, and $ 128,400 in 2018. FICA taxes are not subject to investment income such as rental income, interest, or dividends.
Regularly hiring people
Since 1990, the employee share of the Social Security section of the FICA tax has been 6.2% of the gross compensation up to the inflation-adjusting limit. The tax limit in 2017 is $ 127,200 gross compensation, resulting in a maximum Social Security tax for 2017 of $ 7,886.40. This limit, known as the Social Security Income Base, is rising annually on an average national wage and, in general, at a faster rate than the Consumer Price Index (CPI-U). The share of Medicare employees of the tax is 1.45% of wages, without limitation on the amount of wages that Medicare charges from the tax. Since some payroll compensation may be subject to federal and state income tax withholdings other than Social Security tax cuts and Medicare tax cuts, Social Security and Medicare taxes often account for only part of the total employee paid.
Employers are also responsible for 6.2% Social Security and 1.45% Medicare tax, making Social Security totaling 12.4% of Medicare's wages and total taxes 2.9%. (Self-employed persons are responsible for all FICA percentages of 15.3% (= 12.4% 2.9%), because they are in both employers and workers terms; see the section on self-employed people for more details.)
If a worker starts a new job in the middle of the year and during that year has received an amount exceeding the Jamsostek tax rate with the old employer, the new employer is not allowed to stop holding until the wage limit has been received with the new employer (ie, regardless of the wage limit obtained under the old employer). There are limited cases, such as the transfer of employers of predecessors, in which the deductible payments can be calculated against the year-to-date total.
If a worker pays higher for Social Security by having more than one job or by switching jobs during the year, the worker may request that the overpayment be counted as a credit for the tax paid when he/she proposes a federal income tax refund. If the taxpayer must return the money, then the FICA tax overpayment will be refunded.
Taxes similar to FICA taxes are levied on the income of self-employed individuals, such as independent contractors and members of the partnership. This tax is levied not by the Federal Insurance Contribution Act, but by the Independent Entrepreneurial Contributions Act of 1954, codified as Chapter 2 of Text A of the Internal Revenue Code, 26 USC Ã,§ 1401 to 26 USCÃ, § 1403 ("Tax Law SE"). Under the SE Tax Act, self-employed persons are responsible for the entire percentage of 15.3% (= 12.4% [Soc. Sec.] 2.9% [Medicare]); however, 15.3% multiplier is applied to 92.35% of revenue net income of the entrepreneur , rather than 100% of gross revenues; the difference, 7.65%, is half of 15.3%, and makes fair calculations compared to regular employees (not entrepreneurs). This is done by adjusting to the fact that the 7.65% share of employees of their SE tax is multiplied by the amount (their gross income) that does not include the alleged "half employer" of the entrepreneurial tax. In other words, this makes the calculation fair because employees are not taxed on the contributions of their employers from the second half of FICA, therefore self employed persons may not be taxed in the second half of entrepreneurial taxes. Similarly, entrepreneurs also halve their entrepreneurship tax (SE schedule) from their gross income on the way to achieving adjusted gross income (AGI). This level is the amount paid by self-employed compared to ordinary employees, who do not pay income tax public on their employer contributions from the second half of FICA, just as they do not pay FICA taxes as well.
Maps Federal Insurance Contributions Act tax
Exceptions
Except for some full-time students
Some student workers are exempt from FICA tax. Students enrolled at least half the time at the university and working part-time for the same university are exempt from the FICA salary tax, as long as their relationship with the university is primarily an education. In order to be exempt from FICA salary taxes, student work must be "incident" to pursue a course of study, which is rare with full-time employment. However, full-time students are never exempt from FICA taxes on work done off-campus.
Full-time medical residents are not considered students and are not exempt from FICA salary taxes, according to the US Supreme Court ruling in 2011.
Exclusions for employees of some state and local governments
A number of state and local companies and their employees in the states of Alaska, California, Colorado, Illinois, Louisiana, Maine, Massachusetts, Nevada, Ohio and Texas are currently exempt from paying Jamsostek's share of the FICA tax. They provide alternative pensions and retirement plans to their employees. FICA did not initially apply to state and local governments, which were then given the option to participate. Over time, most choose to participate, but a large number remain outside the system.
Exception for some non-resident aliens
Some non-resident aliens are exempted from FICA taxes.
- Non-resident foreigners who are foreign government employees are exempt from FICA on wages paid in their official capacity as foreign government employees.
- Non-resident aliens employed by foreign companies as crew members are exempted from FICA for wages paid to work on foreign ships or foreign aircraft.
- Nonresident aliens who are students, scholars, professors, teachers, trainees, researchers, doctors, au pairs, or summer and temporary camp workers in the US in F-1, J-1, M-1, Q- 1, or Q-2 non-immigrant status is exempt from FICA on remuneration paid to them for services permitted by their visa status and made to perform visa status purposes.
- Non-resident aliens who are employees of international organizations are exempt from FICA on wages paid by international organizations.
- Non-resident aliens using H-2A, H-2B, or H-2R visas and Filipinos are exempt from FICA on wages paid for work performed in Guam.
- Non-resident aliens using H-2A visas are excluded from FICA.
Exceptions for members of some religious groups
Members of certain religious groups, such as Mennonites and Amish, may apply to be exempt from paying FICA taxes. These religious groups consider insurance as a lack of faith in God; religious groups believe that it is their religious obligation to provide their sick, disabled and elderly members.
To apply for exemption from paying FICA tax under this provision, the person must file Form 4029, stating that the person:
- Override one's right to all benefits under the Social Security Act;
- Is a member of a recognized religious group who consciously refuses to receive benefits under a personal plan or system that carries out payments in the event of death, disability or retirement, or which makes payments to the costs or provision for medical care, including the benefits of any insurance system established by Social Security;
- It is a member of a religious group that makes adequate provision of food, shelter and medical care for members who depend on it and have been doing so continuously since 31 December 1950; and
- Have never received or are entitled to any allowance paid under the Social Security program.
Persons claiming the above release must agree to notify the Internal Revenue Service within 60 days of leaving the religious group or no longer following the established teachings of the religious group.
Exceptions to some aliens on temporary work assignments
When a person works temporarily outside his/her country of origin, the person may be covered by two social security programs from different countries for the same job. To free people from double taxation, certain countries and the United States have signed tax treaties, known as totalization agreements.
Foreigners whose employers send them to the United States on temporary work assignments may be exempt from paying FICA taxes on their income from working in the United States if there is an agreement of totalization between the United States and the worker's home country. Countries that have tax treaties with the United States include Australia, Austria, Belgium, Canada, Chile, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Japan, Luxembourg, Netherlands, Norway, Poland, Portugal, Slovakia, South Korea, Spain, Sweden, Switzerland and the UK.
To claim an exemption from paying FICA taxes, foreign workers must be on temporary assignment of not more than five years and foreign workers should have certificates from countries stating that workers will continue to be protected by the social of the country. security systems while workers are in the United States.
Exceptions for some family employees
When parents employ a child under the age of 18 (or under 21 for domestic services), payments to children are exempt from FICA taxes. Exceptions also apply when a child is employed by a partnership in which each spouse is a parent of a child. Exclusions do not apply when a child is employed by a company or partnership with a partner who is not a child's parent.
Exceptions to foreign governments and some international organizations
Foreign governments and exempt from FICA taxes on payments to their employees. International organizations are also excluded if the organization is registered under the International Organization's Immunization Act.
If an employee is a US citizen, such employee shall normally pay the self-employed tax on income from work done in the United States.
Exceptions to certain emergency workers
If state or local government employees are temporarily employed in response to unexpectedly similar unexpected fires, blizzards, earthquakes, floods or similar emergencies, and such employees are not intended to be permanent employees, the payments for that employees are exempt from tax FICA.
Exclusions for specific newspaper operators
Payments for newspaper operators under the age of 18 are exempt from FICA taxes.
Exclusions for multiple property agents and salespeople
Compensation for real estate agents and salespeople is exempt from FICA taxes under certain circumstances. The compensation is exempted if substantially all compensation is directly related to the sale or other output, rather than the number of hours worked, and there is a written contract stating that the individual will not be treated as an employee for federal tax purposes. Individuals usually have to pay an entrepreneurial tax on compensation.
History
Before the Great Depression, the following difficulties presented to Americans:
- The United States does not have the required federal pension savings; consequently, for people who do not voluntarily save money during their tenure, the end of their working career is the end of all income.
- Similarly, the United States does not have the deficit-income insurance required by the federal government to provide people with disabilities due to injuries (in any form - not work-related); therefore, for the majority of people, a deactivation injury means no more income (as most people have little or no income except to earn income from work).
- In addition, there is no defect income insurance required by the federal government to provide for people who can not work during their lifetime, such as anyone born with severe mental retardation.
- Furthermore, the US does not have the federal government's compulsory health insurance for parents; consequently, for many, the end of their working career is the end of their ability to pay for medical care.
In the 1930s, New Deal introduced Social Security to fix the first three problems (retirement, disability caused by injury, or congenital defects). It introduces FICA taxes as a means to pay Social Security.
In the 1960s, Medicare was introduced to fix the fourth problem (health care for the elderly). FICA taxes are upgraded to pay these fees.
In December 2010, as part of legislation extending Bush tax cuts (called Tax Relief, Reichorization Unemployment Insurance, and Employment Creation Act 2010), the government negotiated a temporary one-year reduction in FICA's payroll taxes. In February 2012, tax cuts are extended for another year.
In March 2014, the Supreme Court overturned a lower court ruling in the United States v. Quality Store, Inc. The court ruled that the severance package is the taxable wage for FICA purposes.
Criticism
The Social Security component of the FICA tax is regressive. That is, the effective tax rate regresses, or decreases, as income rises beyond the compensation limit or the amount of wage base limits. The Social Security component is a fixed tax for wage rates under the Social Security Security Base (see "Regular" employees above). Since no taxes are payable on wages above the base wage limit, the total tax rate decreases as wage increases exceed that limit. In other words, for a wage rate above the limit, the absolute dollar amount of the tax payable remains constant.
Income above the basic wage limit is not, however, taken into account in the Principal Insurance Amount (PIA) to determine the allowances paid under various social insurance programs.
FICA taxes also do not apply to unearned income, including interest on savings, stock dividends, and capital gains such as gains from sale of shares or real estate. The proportion of total revenue exempt from FICA taxes as "unpaid revenue" tends to increase with higher revenue brackets.
Some argue that since Social Security taxes are eventually returned to taxpayers, with interest, in the form of Social Security benefits, tax breaks are effectively eliminated. That is, the taxpayer gets back what he put into the Social Security system. Others, including The Economist and the Congressional Budget Office, show that the Social Security system as a whole is progressive in the low-income group. Individuals with lower average lifetime wages receive greater benefits (both as a percentage of their average lifetime wage income and percentage of paid Social Security tax) than individuals with a higher average lifetime wage; but for some lower recipients, shorter life spans can negate the benefits.
See also
- Canteen plan
- FICO, similar initialism is sometimes confused with FICA
- Form W-2
- Income tax
- Medicare (United States)
- National Insurance Contribution (NIC), a somewhat similar tax in the United Kingdom
- Social Security (United States)
- Establishment of the Recovery Trust Fund, personal responsibility of employers who fail to pay taxes
Note
References
External links
- The maximum annual taxable income and rate, 1937-2006, from the Social Security Administration
- Summary of the Social Security Amendment of 1983, from the Social Security Administration
- Student Exclusion on FICA Taxes, from Internal Revenue Service
- Go Forward and Close Lift, discuss the 2008 US presidential campaign plan on payroll taxes, from Dollars & amp; Sense Magazine
Source of the article : Wikipedia
0 Comments