2.2. Payroll taxes
The federal government requires employers to deduct payroll taxes froman employee’s salary before
paying the employee. The government uses these taxes to fund both Social Security and Medicare.
Because they are mandated by the Federal Insurance Contributions Act, these taxes are often referred
to collectively as “FICA” taxes. The Social Security (also referred to as Old Age and Survivors
Disability – OASDI) portion is 6.20 percent of all dollars earned up to an established limit that usually
increases every year. The Medicare portion is 1.45 percent of all dollars earned, regardless of amount.
Accordingly, unless you earn more than the Social Security limit, your share of the FICA tax will be
7.65 percent of all dollars earned.