As a followup to this morning’s post, it dawned on me that not everyone is an expert on FICA payroll taxes. Thus, I thought I’d expand a bit on exactly what these are.
You may have noticed deductions on your paycheck called FICA-OASDI and FICA-HI. These are your Social Security and Medicare taxes.
For the record, FICA refers to the Federal Insurance Contributions Act, which spells out the tax provisions of the Social Security Act.
The Social Security portion (the OASDI stands for Old-Age, Survivors, and Disability Insurance) is calculated as a flat 6.2% of gross compensation up to the so-called “contribution and benefit base.”
In contrast, the Medicare portion (the HI stands for Hospital Insurance) is calculated as a flat 1.45% of your gross compensation with no cap.
Note that these taxes are paid by both employee and employer. Thus, for every dollar you pay, your employer is also paying a dollar. Aternatively, if you’re self-employed, you’re on the hook for both halves.