You need to know how this law about Social Security contribution works

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Even though you’ve heard of it, do you really know what it’s about? The purpose of this US statute is to collect payroll taxes and finance initiatives like and. That may sound technical, but don’t worry, I’ll explain it in a straightforward manner.

In essence, FICA is what makes it possible for millions of people to obtain benefits like disability or retirement insurance.

How does this operate? A portion of your pay is withheld by your employer and used for these perks. It’s a little different if you work for yourself. You pay all taxes, but you can deduct half of them when you file your taxes.

What it is and how it influences your Social Security contribution

Let’s say you are employed by a corporation. 7.65% of your wage is deducted each time you get paid. Because you additionally pay the employer’s share, that amount increases to 15.3% if you work for yourself. Although it can seem challenging, you can later deduct half of the total.

What happens to the money? to initiatives like Medicare, which provides health care coverage for an additional 61 million people, and Social Security, which helps more than 72 million people in retirement.

Do you think this is a lot? Yes, it is. Maintaining these benefits is costly; Social Security collected about $1.35 trillion in 2023 alone.

Let s use a simple example

Suppose you earn $2,000 a month. A tax of 15.3%, or $306, would be imposed based on current rates. But since it’s a shared duty, your company would pay the other half ($153) and you would pay the other half. Of the $306, $248 would go to Social Security and $58 to Medicare.

The entire $306 must be paid if you work for yourself, but keep in mind that you can deduct $153 from your yearly taxes.

Limits and details you should keep in mind

The Social Security tax (6.2%) and the Medicare tax (1.45%) make up the two primary parts of FICA. These taxes do not apply to all of your earnings, though.

For instance, the cap is $168,600 in 2024. Earnings beyond this threshold are exempt from Social Security taxes.

Medicare, however, has no salary cap; however, you have to pay an extra 0.9% tax if your income is high. This pertains to:

• 
  Single individuals
  
  earning more than $200,000.
• 
  Married couples
  
  filing jointly and earning more than $250,000.
• 
  Married couples
  
  filing separately and earning more than $125,000 each.

The overall Medicare rate in these circumstances would be 2.35%.

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