FICA, OASDI, FUTA -- What Are These Payroll Taxes?
Why you lose half your paycheck
Do you ever look at your pay stub and just groan? Does it seem that half of your salary is going to taxes and you only have half an idea what for? Here are some pointers to help you understand.
Social Security and Medicare
FICA refers to the taxes collected under the Federal Insurance Contributions Act. These taxes are imposed on both you and your employer to fund Social Security and Medicare. If you are self-employed or a freelance contractor, you pay both portions, although strictly speaking, the tax is not then a FICA but rather a self-employment tax. The amount you pay over a lifetime is indirectly tied to the amount you will collect as a retiree. OASDI or old-age, survivors, and disabled insurance is the formal name for social security, in other words, the same as FICA.
You might also see slots on your stub for “federal withholding” which refers to the amount of income tax you are having deducted from you check. This amount is somewhat up to you, since you can determine how many dependents to list. In California, because of the state income tax, you will also have a section for state income tax withholding, and SDI (state disability insurance).
As surprising as it sounds, employees do not contribute to unemployment benefits. FUTA is the Federal Unemployment Tax Act under which employers fund payments for workers who lose their jobs. Most employers pay under both federal and state (SUTA) requirements. Generally you can collect unemployment if you were laid off or fired for reasons that do not involve misconduct.
So as you think about how far your check will go, don’t forget to factor in taxes — until death do we part.