Federal And State Taxes Are Not The Only Items Withheld

Federal And State Taxes Are Not The Only Items Withheld From Your Payc

Federal and state taxes are not the only items withheld from your paycheck. There are other options such as benefits, the Federal Insurance Contribution Act (FICA), the Employee Retirement Income Security Act (ERISA), and Social Security. Watch the videos A Primer on Social Security and A Primer on the FICA Tax located in this week's M.U.S.E. to get a better understanding of both FICA and Social Security. Please respond to the following questions: What is FICA? What percent do the employer and the employee pay? What is ERISA? When and why was it enacted? What do you feel is the future of Social Security, and why? words apa format in txt citations no plagerism

Paper For Above instruction

The payroll system encompasses various withholdings aside from federal and state taxes, including contributions towards social security, benefits, and other statutory provisions such as FICA and ERISA. Understanding these withholdings is crucial for comprehending how payroll deductions function and their implications for both employees and employers.

FICA, or the Federal Insurance Contributions Act, is a United States federal payroll tax that funds Social Security and Medicare programs. Implemented in 1935, FICA aims to provide social insurance benefits to eligible workers and their families, ensuring financial security during retirement, disability, or in case of death (Social Security Administration, 2020). Both employees and employers contribute to FICA, with each paying a specified percentage of the employee’s wages. Currently, the employee and employer each pay 6.2% towards Social Security and 1.45% towards Medicare, totaling 7.65% respectively, with the possibility of additional contributions for high-income earners (Internal Revenue Service, 2023).

ERISA, or the Employee Retirement Income Security Act of 1974, was enacted to regulate private pension plans and ensure their financial stability, transparency, and protection for participants. Prior to ERISA, many pension plans faced mismanagement or insolvency, leaving employees unprotected (Baker, 2019). The law was introduced to establish standards for plan managers, enforce fiduciary responsibilities, and safeguard employee retirement benefits. It also set minimum standards for participation, vesting, funding, and reporting, thereby enhancing the overall security of retirement assets (U.S. Department of Labor, 2021).

Looking ahead, the future of Social Security presents both challenges and debates. Demographic shifts, such as increased life expectancy and the retirement of the Baby Boomer generation, are anticipated to strain the system’s financial sustainability (Congressional Budget Office, 2022). These trends could result in reduced benefits or increased payroll taxes if reforms are not enacted. However, several proposals aim to address these issues, including raising the retirement age, increasing payroll taxes, or modifying benefit formulas. The longevity of Social Security may depend on the willingness of policymakers to implement reforms that balance fiscal sustainability with the program’s social safety net purpose (Munnell & Sass, 2019). Personally, I believe that gradual reforms will be necessary to sustain Social Security for future generations while maintaining its fundamental role in providing economic security.

References

  • Baker, M. (2019). Understanding ERISA: Employee Retirement Income Security Act. Pension & Investments Journal.
  • Congressional Budget Office. (2022). The Budget and Economic Outlook: 2022 to 2032. https://www.cbo.gov/publication/57868
  • Internal Revenue Service. (2023). Employer’s Tax Guide. https://www.irs.gov/publications/p15
  • Munnell, A. H., & Sass, S. A. (2019). Will Social Security survive? Journal of Economic Perspectives, 33(2), 137–160.
  • Social Security Administration. (2020). History of Social Security. https://www.ssa.gov/history/
  • U.S. Department of Labor. (2021). Employee Retirement Income Security Act (ERISA). https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/fact-sheets/erisa

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