FICA Tax Funds Retirement and Medical Benefits for Retirees

By hrlineup | 24.04.2020

After working for decades, employees face living for a few more decades without their monthly earnings. That is why from the beginning of their employment, workers start planning for their retirement. On the part of the employer, they need to ensure that taxes are filed, especially Medicare taxes. Furthermore, social security payments need to be made. This is where FICA begins to take shape.

What is FICA?

FICA stands for Federal Insurance Contributions Act tax. It includes several payroll taxes which are collected and paid by both employers and employees in equal shares. FICA captures both social security and Medicare tax.

The social security employee tax is collected to help give out funds for some of the Social Security Administration funds. When collected, the funds are placed into a trust that is able to disburse benefits for three key groups. These include

  1. Disability – for individuals who have been disabled
  2. Retirement – to cater for life once an individual stop working
  3. Survivor benefits – for the surviving spouses and their children if the working individual has died.

For retirees, together with their spouses to get retirement benefits, they need to ensure they have qualified for Social Security. The best way to do so is to ensure it is done once someone gets employed for the first time. This requires opening an online account that is known as my Social Security account. By accessing this account periodically, it becomes easier for the employee to manage as well as track your social security benefits.

Then there are the taxes that are collected for Medicare. Medical taxes that are collected when one is working are used to cater for current costs. In the event that there are some funds which are excess, they are deposited into a Medicare trust fund. The amount that is saved over the years through FICA tax funds get transformed into investment income upon retirement.

The Medicare employee may be concerned about what will happen with their health benefits once they need to retire. In the past, large employers offered excellent programs for retiree health benefits. However, over time, this has been on a decline as companies focus on bringing down their total costs.

To experience retiree health benefits today, one may need to work for a state or local government organisation, or to work in a company earning a higher wage. These firms primarily offer these benefits to ensure that retirees had some health security when they needed it most.

The employer may choose to offer the same health care options that are available to active employees for workers who fall within the pre-65 age range. Due to the need of the patients, this type of medical insurance will be more comprehensive that what would have been accessed by Medicare. For those who have access to Medicare and are above the age of 65, the main health coverage that they receive is supplemented by the employer for added health coverage.