Tuesday, October 25, 2011


Payroll Taxes and Income Taxes are separate wage deductions.  Payroll taxes go towards Social Security, Medicare and Unemployment Insurance.  (Based on 2011 rates)

FICA  =  Federal Insurance Contributions Act  =  Social Security and Medicare

·        50% of FICA is paid by employers and 50% is paid by employees
·        6.2% of wages up to $106,800 is the Social Security rate for individuals 
·        $6,621 is therefore the maximum Social Security deduction for individuals making over $106,800 per year
·        1.45% of wages up to $106,800 is the Medicare rate for individuals
·        $1,548 is therefore the maximum Medicare deduction for individuals making over $106,800 per year
·        Together, 7.65% is the flat tax rate for FICA on wages under $106,800/year

UI =  Unemployment Insurance

  • UI programs are federally required and subsidized, state run programs
  • Benefits, eligibility and rate structures vary from state to state
  • On average, UI programs collect about $1,000 per person per year
  • A median wage earner ($26,364/year) therefore pays and average of about 3.8% for Unemployment Insurance

FICA + UI Payroll Deduction = About  11.45% of gross wages under $106,800.00.

The Federal Income Tax Rate = 15% for taxable wages between $8,500 and $34,500

A median wage earner pays a total of 11.45% (or $3,016.00) of their wages in Federally mandated taxes even if they pay no Federal Income Tax.

The Payroll Tax Rate for a person making a million dollars is 0.01%.  

This seems to show that payroll taxes are regressive in that they have more of an impact on low wage earners. This is something to think about that when discussing how to save Social Security. 

Read More on FICA rates by clicking here

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