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FICA taxes

FICA stands for the Federal Insurance Contributions Act. Social Security and Medicare taxes are often called FICA taxes because they are collected under the authority of the FICA. When you defer compensation, FICA taxes apply at that point for your elective deferrals, at vesting for any contributions/match from company, and at distribution if you did not have to pay the FICA tax earlier (e.g. with SERPs and other nonqualified defined benefit plans). Social Security tax (6.2%) is collected from you up to the yearly maximum, while Medicare (1.45%) is uncapped. Your company should have a system for collecting and paying these and for reporting the taxes on your W-2.

Alert: In 2013, the Medicare tax rate rose to 2.35% for single filers with incomes of more than $200,000 and for married joint filers with incomes of more than $250,000.