Welcome to the next episode of "Ashley Explains," where our resident tax guru, Ashley Hamilton, lays down the facts about tax!
In this episode, Ashley Explains those pesky FICA and Federal Withholdings that get deducted from your paycheck, and the differences between them.
NOTE: The information provided in this video is based on 2018 rules and regulations. We will work to update this episode annually as these rules change.
Read the Transcript:
Hi I'm Ashley Hamilton, Tax Manager at Complete Payroll. Welcome to another episode of Ashley Explains... where I lay down the facts about tax. Let's get started!
So, what's the difference between federal withholding, and FICA withholding? When I say "federal withholding," I'm talking about federal income tax withholding. This is a tax that applies to your personal income tax return at the end of the year. Your form 1040.
Federal income tax is calculated based on how you complete your W-4. The Employees Withholding Allowance Certificate. The Federal Insurance Contributions ACT or "FICA" is actually two taxes: OASDI and Medicare. These taxes contribute to social security and Medicare, and are calculated at a fixed rate of 7.65%.
OASDI is basically just social security. It stands for, Old Age Survivors And Disability Insurance program. OASDI is a comprehensive federal program that does just what it says: provide benefits to retirees, disabled people, and their survivors.The goal of the program is to partially replace income that is lost due to old age, death of a spouse, or qualifying ex spouse, or disability.
Medicare is a federal health insurance program for people who are 65 or older, certain younger people with disabilities, people with end stage renal disease.
Think of it this way, federal withholding is for this years tax return. And FICA is for programs that you may need in your future.
Thanks for watching.
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