FICA, or Federal Insurance Contributions Act, taxes were first collected in 1937 at a rate of 1 percent. Today, in 2011, the total tax rate is 15.3 percent; however, the federal government will be supplementing a portion of it.
What are FICA Taxes?
FICA taxes today include a Medicare portion, known as hospital insurance, or HI, and a Social Security portion, known as Old-Age, Survivors and Disability Insurance, called OASDI.
Employees were subject to OASDI since 1935. In 1951, OASDI taxes were extended to cover earnings for self-employed individuals as well.
The Medicare portion of FICA taxes was introduced in 1966 for both employees and self-employed individuals at a rate of 0.35 percent. In 2011, Medicare is taxed at 1.45 percent for both employee and employer, for a total of 2.9 percent -- self-employed individuals must pay the full 2.9 percent.
Limits on OASDI Taxes
You only pay the 10.4 percent Social Security tax on your first $106,800 for 2011. If you are self-employed, you pay the whole amount. If employed, you pay 4.2 percent, with your employer making up the 6.2 percent difference in 2011.
2011 OASDI Tax Reduction
For 2011, the federal government reduced the OASDI tax by 2 percent to aid citizens during what has been a difficult recession. The 2 percent difference, "will be made up by transfers from the general fund of the Treasury to the OASI and DI trust funds," reports the Social Security Administration.
Based in the Kansas City area, Mike specializes in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."