Fica what is this

Workers who live in some states that provide alternative retirement plans may also be exempt. FICA taxes pay for a broad range of federal programs to help the elderly and disabled, but they do not pay for Medicaid , the government insurance program offered to lower-income people. Whereas FICA tax revenue has a close correlation with the federal benefits employees will collect in retirement, programs like Medicaid are drawn from state budgets and can be reduced to make room for other budgetary concerns.

Find one with the best rates today. Matt has been working full time for many years. On each paycheck, he pays a portion of his compensation in FICA taxes, paying thousands of dollars each year toward Social Security and Medicare benefits he hopes to enjoy when he retires. His employer also matches the amount he pays.

At 67, Matt finally retires, and he starts collecting the full amount of Social Security payments, off of which he can live his remaining years in some degree of comfort. Before taking a side in the debate, consider these factors. Please return to AARP. You'll start receiving the latest news, benefits, events, and programs related to AARP's mission to empower people to choose how they live as they age.

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Now Reading:. Membership My Account. Rewards for Good. Share with facebook. Consider hiring a payroll specialist. Qualified retirees and people who are disabled can use these benefits as their partial income.

This federal benefits program may also go to the children of beneficiaries. When employees and employers pay into this system, they eventually get to reap the benefits later on in life. The current FICA tax rate is 7.

This tax is broken up into 6. At the end of the year, you typically must send each employee a W-2 that outlines their annual wages and taxes withheld. Since most people get their health insurance through their employer, Medicare is a solution for people who are retired or unable to work. The different parts of Medicare cover various medical expenses. Medicare Part A covers inpatient hospital stays, nursing facility care, hospice care and select home health care.

Medicare Part D adds on prescription drug coverage to different plans. There are also bundled plans through Medicare Advantage , also known as Part C.