Does FICA Affect AGI?

by Bob Haring, Demand Media

    FICA is a tax that isn't a tax. Most state, local and other taxes can be deducted from your adjusted gross income, called AGI, when you figure your federal income tax return. FICA stands for Federal Insurance Contributions Act, the 1935 law that created Social Security, and it is considered a contribution instead of a tax. You'll get it back when you retire and collect Social Security benefits.

    Total Income Includes FICA

    You contribute 6.2 percent of your total earnings through FICA withholding. Your employer matches that amount, but only your share is reported on the W-2 tax withholding statement. That shows your total earnings and the amount withheld for Social Security. Still, your total income includes that FICA amount, which is used for AGI computation. The Social Security Act says contributions are not deductible.

    Employer FICA Share Is Not Shown

    You do not report and are not taxed on the employer's FICA contribution, which is also 6.2 percent of your income. Your W-2 shows your income and your FICA; your employer reports its FICA contributions on your behalf on that tax return. That FICA tax is not part of your adjusted gross income.

    FICA for Self-Employed

    If you are self-employed, you have to pay your own FICA, although it's called a self-employment tax. You calculate your self-employment tax based on your self-employment income. You report your total self-employment income on your federal tax return, and you can deduct half of that from your adjusted gross income. That represents an employer's FICA share.

    Benefits May Be Taxable

    You may be taxed on your Social Security benefits when you start collecting them. If you file on a long form, Form 1040 or 1040A, you'll have to complete a work sheet to calculate how much, if any, of your benefits are taxable. If you're self-employed and collecting Social Security, you may have to pay self-employment tax and tax on benefits, too.

    About the Author

    Bob Haring has been a news writer and editor for more than 50 years, mostly with the Associated Press and then as executive editor of the Tulsa, Okla. "World." Since retiring he has written freelance stories and a weekly computer security column. Haring holds a Bachelor of Journalism from the University of Missouri.