Social Security’s Acting Commissioner, Carolyn W. Colvin, likes to tell this amusing story. A colleague’s teenage daughter came home bursting with excitement after receiving her first paycheck. But she had one question about her earnings statement.
“Well, Dad” — she asked him earnestly — “who is this FICA?”
If you’re a seasoned worker, you probably know that this is a federal tax on wages. Two taxes, really. FICA stands for “Federal Insurance Contributions Act.” This is the law that funds both Social Security and Medicare through payroll taxes. Employees share this cost with their employer.
Your FICA contributions earn Social Security credits. For 2016, you need to make $1,260 in wages to earn one credit. You can earn up to four credits a year. Most of today’s workers need at least 40 credits to apply for retirement benefits. That’s ten years of work. Of course, you have to be old enough to retire too!
Social Security also pays benefits to workers who become severely disabled, and to survivors when a worker dies. The number of credits you need to qualify for these benefits depends on your age when you become disabled or die.
You can get Social Security retirement benefits as early as age 62. If you retire before your full retirement age, your benefit will be smaller. Your benefit will be highest if you put off retirement until you’re 70. We base your retirement benefit on your average earnings over your working years.
Visit our benefits planner to find out more.
Your FICA contributions also pay for Medicare hospital insurance. Medicare is the country’s health insurance program for people age 65 or older. People younger than 65 with certain disabilities or permanent kidney failure can also qualify for Medicare. You’ll find everything you want to know about Medicare at Medicare.gov.
If FICA were a person, she’d have plenty to juggle! Social Security covers an estimated 165 million workers. The program pays benefits to about 40 million retired workers, 9 million workers with disabilities, and 6 million survivors of workers who have died. It also helps about 5 million dependent family members.
The equivalent law for self-employed workers is the “Self-Employment Contributions Act,” or SECA. If you’re self-employed, you pay both worker and employer contributions toward Social Security and Medicare. The employer share counts as a deductible business expense.
We make it easy to get estimates of your future retirement, survivors, and disability benefits. By creating a my Social Security account, workers have 24-hour access to their personalized Social Security Statement. Besides showing your future benefits, the Statement lets you check to be sure the earnings information we have for you is correct.
Create your account to take advantage of this invaluable financial planning tool. It’s free, fast, and secure! If there’s someone in your life who may be wondering who FICA is, let them know too.