The Federal Insurance Contributions Act, commonly referred to as FICA, was instituted in 1939 for the purpose of providing funding to Social Security and Medicare programs for retired Americans. Although the percentage of FICA withholdings for each individual will vary from paycheck to paycheck, most people have 13-16% of their annual income withheld.
Employees are not the only ones responsible for providing funds for the Federal Insurance Contributions Act. Employers are required to match their employees’ contributions dollar for dollar. Unfortunately, if you are self-employed, the government requires you to pay both the employee and employer portion of the FICA tax. On the other hand, self-employed individuals are allowed to deduct the “employer” portion of their contribution as a business expense.
Unfortunately many employees and self-employed individuals across the nation are in the dark about proper tax procedures and strategies. The result is that many people end up having too much withheld from their paycheck every month. While in most cases this results in some of their FICA withholdings coming back to them as tax returns, they unfortunately lose the interest that might have been made on those dollars. Instead the government gains the benefit of interest on money that doesn’t belong to it.
The Next Step
Understanding the provisions of the Federal Insurance Contributions Act is just one step towards achieving better financial management. Robert G. Allen and Mark Victor Hansen, both authors of multiple New York Times bestselling books-including Creating Wealth: Retire in Ten Years Using Allen’s Seven Principles of Wealth!, Multiple Streams of Income: How to Generate a Lifetime of Unlimited Wealth, and the Chicken Soup for the Soul series—have teamed up to write The One Minute Millionaire: The Enlightened Way to Wealth. In this brilliant and influential book, Robert G. Allen and Mark Victor Hansen pool together their personal experiences in real estate and expertise in financial investment to provide an abundance of strategies to help others achieve extraordinary wealth and financial success.
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