FICA Tax

In United States, the FICA Tax or the Federal Insurance Contributions Act Tax is considered as an employment or payroll tax. The federal government levies FICA Tax on employers and employees simultaneously, for financing several programs related to medical care and social security on federal levels. Hence, all the handicapped and retired persons, as well as children of the deceased American citizens come under the jurisdiction of United States FICA Tax. Stated more specifically, the benefits associated with social security measures like OASDI or old-age, survivors and disability insurance come under the purview of FICA Tax. On the other hand, medical care offers benefits of hospital insurance.

Brief historical evolution of FICA Tax in America:

The historical evolution of the FICA Tax in America can be traced back to the period prior to the Great Depression in America, which saw the emergence of economic hazards among the American working class. This was mainly due to the fact that there were no compulsory retirement savings schemes for aged citizens, provided by the federal government. This led to complete termination in the income generation of maximum workers in the post-retirement period. Moreover, there was also no mandatory income insurance policy for the disabled citizens of United States, to make them survive even after the mishaps. For them too, there was complete termination of income generation. Further, the absence of health insurance for the aged aroused discontentment among the American population on all social strata. To handle the situation, the New Deal was introduced in the 1930s, to solve the problems related to Social Security like inborn disability, disability caused by injury and retirement. This was followed by the initiation of the FICA Tax, to pay for Social Securities. With the introduction of medical care services in the 1960s, to solve aged heath care problems, the FICA Tax was increased for making medical payments.

Calculation of Federal Insurance Contributions Act (FICA) Tax in United States:

Calculation of FICA Tax involves a few steps. In the first place, a statement is made by the Center on Budget and Policy Priorities that about three-fourths of the American taxpayers pay more payroll tax than income tax. In fact, the FICA Tax is regarded as a regressive income tax, without the involvement of personal exemption deduction or standard deduction. For the coming financial year 2008, FICA Tax will be imposed on only the first $102,000 of the total wages. In this case, the FICA Tax is not levied on income generated from different investments like dividends and interests.

In case of wage earners the Social Security Wage Base, increases each year on the basis of the nationwide average wage.

With respect to the share of the employees in the medical care part, it is around 1% of the total wage. In addition to the social security and medical care shares of the FICA Tax, the employees are also responsible for paying around another 6% and 1% separately.

In case of those American citizens who are self-employed, a tax almost same to that of the FICA Tax is levied on the income of the self-employed people like partnership members and autonomous contractors. Imposition of this tax is made by the 1954 Self-Employment Contributions Act, and not by the Federal Insurance Contributions Act.

Criticisms of FICA Tax:

FICA Tax is criticized on the ground that the American working force is compelled to make contributions to this tax. The people feel that law should not force this tax payment on the general population. According to some others, the FICA Tax should not be under the control of the government, with regard to retirement savings and mandatory insurance. They argue that the government should only act as an authorizing body, allowing the market to operate.