Earned Income and FICA Taxes

Let’s quickly understand Earned Income and how it connects to FICA.

Earned income means money you actively work for — like salary, wages, tips, commissions, or self-employment income. If you receive a Form W-2 or file Schedule C, that’s earned income.

Now here’s the important part — earned income is subject to FICA taxes.

FICA stands for Federal Insurance Contributions Act, and it funds Social Security and Medicare. It is administered by the Internal Revenue Service.

As an employee, you pay: 6.2% for Social Security
1.45% for Medicare
Total 7.65%.

Your employer matches that 7.65%.

If you are self-employed, you pay both portions — that’s 15.3%, called Self-Employment Tax.

But remember — investment income like interest, dividends, or capital gains is NOT subject to FICA.

So in simple words: Work income = FICA applies.
Investment income = No FICA.

Understanding this difference is critical for tax planning and credit eligibility.

Follow for more practical US taxation concepts simplified.

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