What Are FICA Taxes And Why Do They Matter?
The Federal Insurance Contributions Act (FICA) tax is a federal employment tax which both employees and employers contribute to in order to fund both Social Security and Medicare
The amount that you pay in FICA taxes is indirectly correlated with the amount that you will receive either when you become disabled or retire. Employees pay FICA taxes at the 6.2 percent withholding rate up to the taxable maximum. The Medicare portion of FICA paid by the employee is 1.45 percent. If you are self-employed, you do not pay FICA taxes, but rather a tax imposed by the Self-Employment Contributions Act commonly referred to as SECA taxes.
When you work and pay FICA or SECA taxes, you earn credits towards Social Security (both disability and retirement) benefits. For example, in 2015, $1,220 in wages will earn you one credit. You can earn a maximum of four credits per year.
The number of work credits you will need in order to be eligible for Social Security Disability Insurance (SSDI) benefits depends on your age:
- If you are younger than age 24 you will need 6 credits earned in the 3-year period prior to your disability.
- If you are age 24-30 you will need to have worked for half the time between age 21 and the time that you become disabled.
- If you are age 31-43 you will need 20 credits.
- If you are age 44-45 you will need 22 credits.
- If you are age 46-47 you will need 24 credits.
- If you are age 48-49 you will need 26 credits.
- If you are age 50-51 you will need 28 credits.
The amount of credits required increases by 2 every 2 years.
If you have not earned enough credits then you should determine whether you qualify for Supplemental Security Income (SSI). SSI does not consider your work credits and you can be eligible for that program even if you have never paid FICA or SECA taxes.
FICA and SECA taxes determine the amount you will be eligible to receive in SSDI benefits. While you do not “get what you paid in” in terms of a dollar-for-dollar approach, in general the more you pay in FICA and SECA taxes the higher your SSDI benefit amount (Primary Insured Amount, or PIA) will be.
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