People who work hard might look at their paycheck stub and notice that they are paying a FICA tax. This is a broad term for a group of taxes covered by the Federal Insurance Contributions Act. These include the Social Security taxes that are formally known as the old-age, survivors, and disability insurance taxes. Medicare taxes also fall under this category.
While you might not want to see this money come out of your check, it does serve an important purpose. The FICA taxes help to cover Social Security Disability Insurance payments for workers who become disabled and have worked enough to meet specific criteria. They also cover the Medicare program that helps these workers to get the medical care they need once they are receiving SSDI. Here are some important points to know about these matters:
Tax rates change over time
You might not realize it, but employees aren’t the only ones who have to pay these taxes. Employers also must pay them. As of 2018, the rate for the Social Security tax is 12.4 percent total. Half of this, 6.2 percent, is paid by the employee and the other half is paid by the employer. For the Medicare tax, the total tax is 2.9 percent. It is also split equally by the employer and employee with each playing 1.45 percent.
There is some income-specific information that applies to the FICA tax set. As of 2018, employees only pay the Social Security tax up to $128,400 in wages. There isn’t a limit for the Medicare tax. A person who makes more than $200,000 per year will have an extra .9 percent withheld for the Additional Medicare Tax, which begins on the paycheck in which that threshold is exceeded.
Some believe change is necessary
This year was the first time since 1982 that the SSDI program has more in expenditures than it had in collected revenue. Senator Bernie Sanders introduced a bill in 2018 dubbed the Social Security Administration Fairness Act, which seeks to make changes to the current way of doing things. One issue that it addresses is the five-month waiting period that disabled workers must wait before they receive a benefit payment. Another waiting period it seeks to eliminate is the two years that the person has to wait to receive Medicare once they qualify for SSDI.
These changes wouldn’t come without a cost. More taxes would need to be collected in order to make this plan work. For a worker making $35,000 per year, the cost would be between $30 and $60 per year. While this plan isn’t likely to pass, it is a good start for revamping the program so that workers in the future will still be able to benefit from the program they are paying into.