The FICA tax is the federal law on insurance contributions. The Federal Insurance Contribution Act is a federal payroll of the United States regulating social security and health insurance taxes. The country's social security and health insurance programs receive a tax contribution as part of the FICA tax. People have to pay these taxes while working to fund the programs to benefit from them when they reach retirement age. Employee wages and employer contributions collectively constitute FICA taxes.
The federal tax on insurance contributions was adopted in 1935 as part of the Social Security Act. The monthly benefits of over 41 million retirees and over 60 million beneficiaries were covered each month by this program. FICA funds two key federal programs that support the physical and financial well-being of the country's seniors.
How much is the Tax amount on FICA?
It is necessary to note that only a certain income category is affected by the payroll tax, which varies from year to year, depending on the increase in wages. All salaries between $0.01 and $ 137,700 are subject to payroll tax for the 2020 tax year. Any salary over $ 137,700 is exempt from payroll tax.
The nation's Medicare program, with nearly 83% of eligible members aged 65 or older, is funded by the FICA tax. The rate of FICA tax deducted from your Medicare paycheck is 2.9%; however, like payroll tax, you and your employer share 2.9%, or 1.45% each. You will also be liable for 2.9% if you are self-employed.
However, unlike the income group of income tax, Medicare tax applies to all income earned, not just that earned between $ 0.01 and $ 137,700.
In addition to the first two items, a third of the Medicare tax component is tied to a small population percentage. Taxpayers who earn above $200,000 in annual income must pay an additional 0.9% Medicare surcharge. However, employees are fully responsible for paying this 0.9% tax, which means that the FICA rate of 1.45% of the total salary is paid by your employer, while you will have to pay a 1.45% FICA tax rate on payroll up to a range of $200,000 and an additional 0.9% working up to 2.35% for any income above this limit.
In total, the FICA rate is 15.3%, with most Americans paying 7.65% if they are not self-employed. Let's take a look at a nice summary of the points above:
Responsibility for Medicare tax: with no income limit, employee and employer each owe 1.45%.
Social Security Payroll Tax Responsibility: For employees in the income category, up to $137,700, 6.2% of the FICA rate for each employee and employer.
Surcharge Tax on Medicare: Employees earning more than $ 200,000 owe 0.9%.
Getting a refund on Medicare/Social Security Taxes for Nonresident Alien Students
Medicare taxes and Social Security do not apply to F-1 and J-1 students during their first five years of residence in the United States. These categories of students are recognized as non-resident aliens (NRAs), and on-campus or off-campus employers cannot withhold their FICA taxes during optional practical training (OPT) or curricular practical training (CPT).
The following criteria established by the US Internal Revenue Code (IRC) under Section 3121 (b)(19) exempt international students from FICA tax:
For tax purposes, the person must be a non-resident alien (i.e., with an F-1 or J-1 visa as mentioned above);
Individuals must be involved in related activities and according to the issued visa's main purpose.
The visa categories falling under this category are F, J, M, or Q
On rare occasions, off-campus employers tend to be unaware of the International OPT/CPT students' IRC section and accidentally withhold their FICA taxes. On these occasions, international students may receive a reimbursement of FICA taxes from the off-campus employer by following the steps below:
Request a refund from your employer.
Step 1: You will need to contact your employer for withholding FICA taxes from your income and inform them of the exemption that non-resident foreign students receive from FICA taxes when working at CPT or OPT. You must apply for a Social Security / Medicare tax refund.
Step 1 is all you need if you are reimbursed; however, if your employer refuses to reimburse you, you can move to the next step.
Step 2: If the employer is not ready to reimburse the withholding tax
You will need to complete Form 843, "Claim for Refund and Request for Abatement."
The following must be attached to Form 843:
A copy of Form W-2 detailing the amount of FICA tax withheld.
A copy of your visa.
Form I-94 and any other document proving the dates of arrival and departure.
Form I-20 if you have an F-1 visa.
Form DS-2019 if you have a J-1 visa.
Form I-766 or I-688B (if you are an OPT or have a job due to extreme financial need).
Payment statements showing taxes paid during the period you were not subject to FICA tax if you were exempt from Medicare and Social Security taxes only for part of the year.
A statement from your employer specifying the amount of reimbursement provided by the employer and the amount of reimbursement requested by the employer or the amount you authorize your employer to claim. Suppose your employer does not provide this statement. In that case, you must include this information in your return and explain why you cannot attach an employer statement or claim that your employer will not issue a refund on Form 8316.
You must keep a copy of all these documents.
You can send the documents specified above, along with Form 843 and Form 8316, to the service center, where you will submit the current tax return for the charges associated with your order.
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