FICA Tax Rates in 2011

The Federal Insurance Contributions Act (FICA) is most important for employers and individuals. FICA comprises two taxes, tax on social security benefits and Medicare Tax. FICA tax has been steady over the years, but towards the end of 2010, Congress made some changes which will definitely impact the tax rates in 2011.

President Franklin D. Roosevelt introduced an act in the year 1935, which was known as the Social Security Act. According to this act, people who were under 65 years of age and worked in professions related to commerce, were provided with social security benefits. In 1965, Lyndon Johnson included the Medicare in the FICA, which aimed at assisting in the medical expenses of the elderly. President Richard Nixon too played his part by including the cost of living adjustments to social security in 1972. The social security benefits were non-taxable till 1983, when Congress made some amendments to the social security structure and made it taxable.

FICA can be thought of as a contribution that is made by you and your employer every month and it looks to provide assistance in the following four areas.
1. Social security
2. Old age survivor's disability
3. Medicare
4. Medical insurance.

FICA tax dates back to 1935 and it was a part of the Social Security Program. Since then, FICA has remained a part of the Internal Revenue Tax. The employer and the employee both contribute 50% each to FICA, but the employers are the ones who have to ensure the administration of payroll withholding. In case of a self-employed worker, the payroll is administered by the individual himself. After a long debate, the Congress was able to continue with the FICA rates that were expiring at the end of 2010. Besides, there was a significant reduction in the employee's part of the FICA tax. As per the new 2011 FICA tax rates, the employee's part of the FICA tax was reduced from 6.2% to 4.2%. Individuals who have an annual salary of $106,000 or less, would be levied a tax of 7.65% on their paycheck. As far as the medical portion of FICA tax rates of 2011 is concerned, the employers and the employees both will be liable to pay 1.45% of the worker's gross income. If you have had more than one job in a year, then your employers need to withhold the Social Security tax on your wages.

For an employee, if the maximum gross income is $106,000 or less, the tax payable would be 4.20% of $106,000. The employer levies a tax of 6.20% on the gross income up to $106,000 or less. The medicare part of the FICA does not have a cap and is calculated at 1.45% of the annual gross income. The maximum contribution towards the FICA tax is $6,621 by the employer and $4,485 by the employee.

FICA & FICO

As both FICA and FICO are related to finance, it has often been seen that a lot of people confuse the two. The truth is there is no such thing known as FICA credit score. FICA has got nothing to do with your credit scores. The Fair Issac Corporation (FICO) is a private company that provides information about the financial stability of an individual through a credit score. FICA is a government act, whereas FICO is a NYSE listed company.

This was some information about the FICA tax rates in 2011. The reduction of 2% in payroll taxes will help households earning $50,000 per year save about $1000. So, 2011 can be a better year for both employers and employees as far as the FICA tax is concerned.