Did You Just Get A 6.2% Raise?
If you look at your pay stub, you may have seen a deduction for FICA and Medicare. The FICA part is an acronym for Federal Insurance Contributions Act, which is the premium you pay that allows you to one day collect your Social Security benefits. Both you and your employer pay 6.2% of your salary as FICA, and the more you earn, the more you pay in both FICA and Medicare taxes. But while you pay the Medicare tax on an infinite amount of earnings, you stop paying the FICA tax at $132,900 of gross wages in 2019. This means that you get, in effect, a 6.2 percent raise for the rest of the year starting once you reach that level of income. What strategies should you consider with that “raise in pay?”