FYI, LOL, BTW – all abbreviations we have grown to love. I’m going to hit you with one not as common, but so much cooler right now. What is it? FICA, better known as the Federal Insurance Contributions Act tax. I knew if I titled this post “Payroll Tax” no one would continue reading. So what makes this abbreviation so cool?
For one, it helps fund federal programs such as Social Security and Medicare (we can talk about these later). But the idea, in theory, works like a charm. The amount one pays in payroll taxes throughout one’s working career is indirectly tied to the social security benefits annuity that one receives as a retiree. Now as good as that sounds, it actually gets better!
For the past few years, FICA would take 6.2% of gross income up to a limit of the nice round number $106,800. To do the math, the most anyone would pay was $6,621.60. In 2011, the employee’s share is dropping from 6.2% to 4.2%. Thankfully still up to $106,800. I know anyone reading this post should pull in well over that figure.
Now for the genius…this 2% increase in your paycheck biweekly will probably go unnoticed. Instead, go into your employer’s HR website and increase your 401(k) contribution by 2%. If you don’t have a 401(k), click the X in the top right of your browser window because we can no longer be friends.