It’s pretty amazing to me how many people still don’t understand our payroll tax system. When you work as a W-2 for an employer, both you and your employer are going to pay certain payroll taxes. The two main types of taxes are the Federal Insurance Contributions Act (FICA) tax and the Medicare tax. Both you and your employer pay 6.2% into FICA up to $132,900 this year and Medicare is a perpetuity tax at 1.45%. Depending on your pay grade and what bonuses you have earned, you may have already received a raise in your paycheck and don’t even know it. The reason is, once you hit the $132,900 limit, you will no longer be paying into Social Security. Unfortunately, since there are many individuals who pay their full amount into social security and their income exceeds $132,900 in a particular calendar year, your HR department won’t send you a notice that you now have an extra 6.2% in ...
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