FICA Tax stands for Federal Insurance Contributions Act. The Federal Insurance Contributions Act is a federal payroll of the United States that modulates Social Security and Medicare tax payment. The country’s social security and Medicare programs receive contribution from the taxes paid as part of FICA Tax. People need to pay these taxes while they are working to fund the programs in order to receive their benefits when they reach retirement age. Employee wages and employer contribution from their own share collectively constitute the taxes on FICA.
The Federal Insurance Contribution Act tax was passed in 1935 as part of the Social Security Act. The monthly benefits of more than 41 million retirees and over 60 million beneficiaries were covered by this program each month. Two critical federal programs which aid the physical and financial well-being of the country’s senior citizens are funded by FICA.
How Much Is The Tax Amount On FICA?
It is important to note that only a certain income range is affected by the Social Security’s payroll tax varying year to year based on wage growth. All wages in the range of $0.01 to $147,000 are subject to the payroll tax in 2022. Any wages above the range of $147,000 are clear of the payroll tax.
Moreover, the nation’s Medicare program of which nearly 83% of the eligible members are senior citizens aged 65 and more is funded by the FICA tax. The percentage of FICA tax deducted from your wages for Medicare works out to 2.9%, however, just like in the case of the payroll tax, you and your employer split down the 2.9% which adds up to 1.45% each. Likewise, you will owe all the 2.9% if you are self-employed.
Nonetheless, unlike the payroll tax’s income range, the Medicare tax is applicable to all income earned and not just what is earned in the range of $0.01 to $147,000.
In addition to the first two components, there is a third bit to the tax with respect to the Medicare element which is tied to a small percent of the population. Taxpayers who earn more than $200,000 in their annual income are required to pay a Medicare surcharge tax of 0.9%. However, employees are entirely responsible for owing this 0.9% tax implying that 1.45% FICA Tax Rate on your total wages is your employer’s responsibility while you would be in obligation to pay 1.45% FICA tax rate on wages up to $200,000 range and an additional 0.9% working out to 2.35% on any income above this limit.
Overall, the FICA tax rate comes up to 15.3%, where the majority of Americans are responsible for paying 7.65% if they aren’t self-employed. Let’s take a look at a nifty summary of the above points:
- Responsibility for Social Security payroll tax: For employees in the income range up to $142,800, 6.2% of FICA tax rate each for the employee and the employer.
- Responsibility for Medicare tax: No income limit, both employee and employer owe 1.45% each.
- Surcharge tax on Medicare: Employees earning over $200,000 owe 0.9% by themselves.
Getting a Refund on Social Security/Medicare Taxes for Non-resident Alien Students
Social Security and Medicare taxes do not apply to F-1 and J-1 students during the first 5 years of their stay in the United States. These categories of students are considered non-resident aliens (NRA) and wither on campus employers or off-campus employers cannot withhold their FICA taxes as long as they are under Optional Practical Training (OPT) or Curricular Practical Training (CPT).
The following criteria set forth by the U.S. Internal Revenue Code (IRC) under Section 3121(b)(19) exempts international students from FICA tax:
- For tax purposes, the individual must be a non-resident alien (i.e. on an F-1 or J-1 visa as mentioned above);
- The categories of visa that fall under this category are F, J, M or Q; and
- Individuals must be involved in jobs related to and in accordance with the issued visa’s primary purpose.
On odd occasions, off campus employers tend to be unfamiliar with the IRC section related to international students on OPT/CPT and withhold their FICA taxes accidentally. On such occasions, international students can get their portion of FICA taxes refunded by their off-campus employer by following the steps below:
Step 1: Request Employer Refund
- You will have to contact your employer for withholding FICA taxes from your income and inform them about the exemption non-resident alien students get from FICA taxes while they are working on CPT or OPT. You must request the issuance of a refund of your Social Security/Medicare tax.
You may stop with this step if your request is successful. However, you will have to proceed to Step 2 if the employer is not willing to provide a refund.
Step 2: If the Employer is not Ready to Refund the Withheld Taxes
- Form 843 “Claim for Refund and Request for Abatement” needs to be completed.
- Nest, the following items must be attached to Form 843:
- A copy of Form W-2 which illustrates the amount of FICA taxes held back.
- Your visa copy.
- Form I-94 and any other documentation that demonstrates your arrival and departures dates.
- Form I-20 if you are on an F-1 visa.
- Form DS-2019 if you are on a J-1 visa.
- Form I-766 or Form I-688B (if you are on OPT or employments because of dire economic needs).
- Pay statements demonstrating the taxes you paid during the period you were not liable to FICA tax in case you were exempt from Medicare and Social Security tax for only part of the year.
- A statement from your employer that specifies the reimbursement amount provided by your employer and the refund amount claimed by your employer or the amount authorized by you for your employer to claim. In case your employer does not provide you this statement, you must declare this information on your own statement and provide reasons for not being able to attach a statement from your employer or claim that your employer will not issue the refund on Form 8316.
- You must save a record of all these documents by making a copy of them.
- You may mail the documents specified above alongside Form 843 and Form 8316 to the service centre where you will be filing your current tax return in relation to the tax to which your claim associates. Non-resident alien students filing 1040NR or 1040NR-EZ may mail their documents to the following address:
Department of the Treasury
Internal Revenue Service Centre
Austin, TX 73301-0215
The entire refund request process may take several months and those filing for a refund must wait at least two months (60 days) before attempting to check the status of their refund claim by contacting the IRS.