My FICA, Federal and State Income Tax “Breakdown”
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A few days ago, I pulled up the tax detail on my paycheck to see how much I was paying to Uncle Sam. Since I don’t get paper checks anymore as it’s all electronic through my job, I tend to forget how much of my hard-earned money is going to the government.
I guess it had been a while since I looked at one of my paychecks because I nearly fell out of my chair staring at my screen. It was pretty disheartening to see the Federal Income Tax, FICA Tax and State Tax eat up a solid chunk of my earnings.
via GIPHY
After I picked my chin up off the floor, I decided that I was going to become more educated on where my money is going each month. For my benefit and yours, here’s a breakdown:
FICA Tax
What is it? How is it spent?
FICA is a payroll tax that pays for:- Social Security (OASDI): A program that is set up to financially support retired workers, widows or widowers and disabled workers.
- Medicare: A health insurance program for people who are 65 years or older or certain younger people with disabilities.
How much does it cost me?
As of this writing, the total FICA tax is 15.3% of the employee’s gross pay. That is split between the employer (7.65%) and employee (7.65%):- Social Security (OASDI): 6.2% for the employee and 6.2% for the employer
- Medicare: 1.45% for the employee and 1.45% for the employer
- Social Security (OASDI): $620 tax
- Medicare: $145 tax
Federal Income Tax
What is it? How is it spent?
This is an annual tax on your personal income imposed by the federal government. Outside of Medicare and Social Security, your federal income tax dollars are used on areas like defense spending, Medicaid and interest on government debt. With all of the news lately about the current administration’s plans for our tax dollars, it’s even more important to be “in the know” on where your money is going.How much does it cost me?
Your federal income tax rate varies based on a multitude of factors including your income level, your deductions (like mortgage interest) and tax credits (like energy efficiency). For a great way to find out how much income tax you’re going to incur and the amount of allowances you should have for this tax year, check out this IRS Withholding Calculator. Since my tax return was higher than expected this year, I used this calculator to adjust my allowances so I’m not letting the government borrow my money again!State Tax
What is it? How is it spent?
Depending on your state, you will be charged a tax on your income … again. This is revenue for your state and can be spent on areas like education, health care, transportation, corrections facilities, low-income assistance and much more.How much does it cost me?
Again, this all depends on your specific state. For example, my state of Michigan has a personal income tax rate of 4.25%. Bankrate.com has an interactive resource that shows income tax rates by state. If you live in one of these states below, throw a party because you pay no state income tax:- Alaska
- Florida
- Nevada
- South Dakota
- Texas
- Washington
- Wyoming