Take a look at your next pay stub. There should be a heading labeled FICA along with a specific dollar amount underneath it. Do you know what that is? Most people do not, except to say that it is something they know is deducted from their pay every week. It turns out that FICA, also known as the Federal Insurance Contributions Act of 1939, officially established what we now know as the Social Security system.
The FICA was conceived the 1930s as a direct result of the financial hardships brought on by the Great Depression. During what were arguably the most difficult financial conditions to ever exist in the U.S., the Government realized there was no federal mandate for personal savings and no way to provide healthcare services to individuals who could not afford it themselves. Thus, the legislation was written to create the federal retirement program, disability income insurance, and federal healthcare insurance for the indigent.
In the 1960s, the Government added healthcare for the elderly by including a new Medicare program under FICA. Individual contributions were increased to pay for the added costs of Medicare. Today, your FICA deduction pays for the following:
- Social Security income for retirement
- Disability insurance in case you cannot work
- Medical insurance (Medicaid) for those who cannot afford it
- Medical insurance (Medicare) for Americans over the age of 65.Â
As you can see, you may never have need of disability income insurance or medical insurance for the indigent. However, you are still paying into the system to cover others who do need it. That is how the Government views insurance. You will benefit from Social Security and Medicare once you reach retirement age.
Now that you know what FICA is, the other thing you should know is that you do not get any of that money back, even if you get a refund from your annual tax filing. Any refund you may be due comes only from the income tax collected by the Government. FICA is not optional and nonrefundable. It is also expensive.
