Have you ever wondered about those pesky FICA taxes that show up every paycheck? These are federal payroll taxes collected under the Federal Insurance Contributions Act (FICA). These taxes are used to support Social Security and Medicare. My employer denotes them as FICA-OASDI (Old-Age, Survivors, and Disability Insurance) and FICA-HI (Hospital Insurance), respectively.

Calculating Your FICA Taxes

The Social Security portion of the FICA tax is a flat 6.2% of gross compensation for wage earners, whereas the Medicare portion of the tax is 1.45%. These taxes are levied on both the employee and employer so, for every dollar taken from your paycheck, your employer is also paying a dollar. Of course, if you’re self-employed, you are both employer and employee. As such, these tax rates are effectively doubled to 12.4% and 2.9% for Social Security and Medicare, respectively.

The good news here is that, if you make enough money, the Social Security tax goes away. In 2006, the Social Security threshold was $94,200. In 2007 it was $97,500, and in 2008 it was $102,000. Thus, every dollar over $102k that you earned in 2008 is free of the 6.2% (or 12.4%) FICA-OASDI tax, though it’s still subject to the 1.45% (or 2.9%) FICA-HI tax.

While your employer should be aware of this cutoff and automatically stop withholding FICA-OASDI when you pass the threshold, you should keep an eye on them just to be sure. Also, if you work multiple jobs, or change jobs mid-year, you have to be especially careful, as each employer has no idea what’s going one elsewhere. If you pass the threshold in aggregate, they’ll withhold too much. The good news is that you can claim the overage back when you file your income taxes.

FICA Exemptions

While nothing in life is certain except for death and taxes, it’s actually possible to get out of paying FICA taxes, but only under very specific circumstances. As it turns out, students that are enrolled half-time (or more) at a university and who are also working part-time for that university are exempt from FICA payroll taxes. Aside from that, you’re on the hook for these taxes.

I just got an e-mail from HSBC Direct stating that they’ve reduced the APY of their online savings account to 3.00% to 2.60%. This prompted me to check the rates at other banks, and I discovered that ING Direct has dropped to 2.50% APY. I’ve updated my list of online savings account interest rates accordingly.

If you’re a Quicken user and are looking to upgrade, then I have good news for you… Intuit is currently offering a $20 discount on some of their most popular products. Here’s the deal:

• Quicken Deluxe 2009 ($59.99 $39.99)
• Quicken Premier 2009 ($89.99 $69.99)
• Quicken Home & Business 2009 ($99.99 $79.99)
• Quicken Rental Property Manager ($149.99 $129.99)

Note that these discounts replace the percent-off discounts that Intuit previously offered. In most cases, however, the new pricing is at least as good as the previous promotional pricing. These discounts are good from January 5th-25th, at which time all products will return to their regular price.

Previously: Quicken 2009 Discounts

Over the weekend, President-Elect Obama outlined the economic challenges that our country faces, and how he plans to take them on. Here’s what he had to say, in his own words:

“…we need an American Recovery and Reinvestment Plan that not only creates jobs in the short-term but spurs economic growth and competitiveness in the long-term. And this plan must be designed in a new way—we can’t just fall into the old Washington habit of throwing money at the problem. We must make strategic investments that will serve as a down payment on our long-term economic future. We must demand vigorous oversight and strict accountability for achieving results. And we must restore fiscal responsibility and make the tough choices so that as the economy recovers, the deficit starts to come down. That is how we will achieve the number one goal of my plan—which is to create three million new jobs, more than eighty percent of them in the private sector.”

So… It appears that the primary focus will be on job creation. Another major focus (not mentioned in the above snippet) is reducing dependence on foreign oil. Both of these are laudable goals, but how will we achieve them?

Here’s a list of initiatives that he’s proposing:

• Doubling of renewable energy production
• Renovation of public buildings to make them more energy efficient
• Rebuilding of American infrastructure (roads, bridges, and schools)
• Updating and computerizing our healthcare system
• Modernizing classrooms, labs, and libraries
• Providing “direct tax relief” to 95% of American workers

Taken together, the components of this plan are estimated (by Obama’s advisors) to cost somewhere between $675 billion and $775 billion, though other expect the costs to be closer to $1 trillion. It’ll be interesting to see how much pork gets piled on top while these things are making their way through Congress.

If you’re interested in seeing his address firsthand, here’s the video:

Source: Change.gov

After a successful year, I just wanted to take a moment to thank those of you who take the time to drop by and read/comment. If you’re not currently an RSS or e-mail subscriber, I encourage you to become one — it’s free! Details can be found here.

I also wanted to thank those sites that have sent readers this way. As a token of my appreciation, I’ve compiled the following list, which is comprised of the fifteen weblogs that sent the most visitors during 2008. Be sure to check them out.

1. Smart Spending
2. Get Rich Slowly
3. Lifehacker
4. The Simple Dollar
5. The Consumerist
6. All Financial Matters
7. Free Money Finance
8. No Credit Needed
9. Wise Bread
10. My Money Blog
11. Consumerism Commentary
12. Blueprint for Financial Prosperity
13. Mighty Bargain Hunter
14. Paid Twice
15. Credit Addict

Thanks to everyone for your support!

A year ago I wrote up a list of financial goals for 2008. Today, I thought I’d take a look back at them and see how we did.

Retirement Savings

As expected, this one was a no-brainer. We maxed out our retirement savings across the board, though we were unable to make Roth IRA contributions as we were beyond the contribution limits. If you’re looking forward to the coming year, here’s a rundown of the IRA contributions limits for 2009.

Non-Retirement Savings

We continued saving aggressively outside of our retirement accounts. We also came up with a overall allocation plan that maximizes tax efficiency while achieving our desired overall balance of stocks and bonds. While the need for this was driven by our non-retirement savings, we implemented it across our full portfolio. Here are a few related posts describing the changes that we made:

• Reconsidering Our Asset Allocation
• How to Manage Your Asset Allocation With Multiple Accounts
• Our Investment Portfolio: Asset Allocation and Location
• Market Turmoil, Portfolio Drift, and Asset Allocation: Time to Rebalance?

Simplifying Our Finances

This one mostly successful, in that we dropped down to two main credit cards (Amex Blue Cash and Chase Freedom) while still keeping an old Citi MasterCard around for use at Sam’s Club. I ended up leaving our other Citi MasterCard since it reduces our apparent credit utilization, and thus has a positive impact on our credit scores.

As far as account consolidation goes, we still have a number online savings accounts that we don’t really use. These are partly a byproduct of my habit of opening accounts so I can write a review “from the inside.” Unfortunately, I’ve been lax when it comes to closing these accounts, so they’ve proliferated.

Finally, I’ve largely completed the task of automating our bill paying and investments. We’re automatically paying pretty much everything that we can, and I’ve set up e-mail and/or text reminders for the rare things that can’t be automated.

Protecting Our Future

This one is a big, fat FAIL. Once again, while we’ve gone to great lengths to protect our assets, we still haven’t closed the deal on a long term disability (LTD) policy for me. I have coverage through work, but we’re in the market for a private policy to provide supplemental coverage. It looks like this item will (once again) roll over to next year’s goals.

Creating a User Manual for Our Financial Life

Once again, FAIL. I’ve given quite a bit of thought to how this one will be implemented, and what to include, I haven’t taken the time to actually put it together. As I said before, “I’m envisioning a three-ring binder containing everything that she [my wife] needs — account numbers, insurance policy numbers, contact information, usernames, passwords, etc.” In truth, the usernames and passwords will likely reside in an encrypted computer file for added safety.

Kids and Money

This is one is a partial FAIL. In truth, I made a conscious decision to delay this one until the market settled down a bit. While we’ve stayed the course (and actually injected a bit more during dips) when it comes to our personal portfolio, I didn’t want to introduce the kids to investing during an uncharacteristically volatile market. That being said, I’m still not 100% sure how to implement this one once I decide it’s time, as we have four kids and I don’t really relish the idea of keeping track of four more investment accounts.

Taxes

This one was mostly successful, in that I’ve aggregated most tax-related documents in a couple of places around the house (plus a few tax-related receipts in the car). Not quite as organized as I had hoped, but better than usual.

What About You?

How did you fare relative to your goals/resolutions for 2008?

Whew… I’m barely getting this one in under the wire, as it’s only New Year’s Day around here for another five minutes or so. Anyway, I just wanted to wish everyone a Happy and Prosperous New Year. After a relatively* uneventful day of travel, I’m exhausted and looking forward to a long weekend of hanging out with my wife and kids before getting back to grind. How about you?

*Note: I said ‘relatively’ because, as I noted over on Twitter, we shared a plane ride home with Rob Van Winkle. Oh, and we also had the privilege of waiting just under an hour for our luggage. With four exhausted kids. Fun.

Photo Credit: plrang

In need of some Holiday cheer? How about a bit of bailout humor?

If you don’t laugh, you’ll cry. Enjoy!

Source: Buffalo Beast

According to a recent piece in the Boston Globe, the most important thing that you can do as we head into tax season is to make sure that your return is accurate. According to tax attorney Ian Comisky,”Because of a huge deficit and major enforcement initiatives by the IRS, an inaccurate return will have a better chance of being picked up than in prior years.”

That being said, you shouldn’t live in fear of an audit. While there are things that you can do to decrease your chances of being audited, you shouldn’t cheat yourself out of legitimate tax breaks “just to be on the safe side.” If you qualify for a particular income tax deduction then, by all means, you should take it. Just don’t claim things that you can’t substantiate, and don’t try to hide your income.

The bottom line here is that, if you’re both honest and careful, you have nothing to fear from an audit. Yes, it will cost you some time, and it will likely be stressful, but you should emerge (more or less) unscathed.

(Knock, knock, knock… That’s me knocking on wood.)

In case you missed it, WT Direct is currently offering a bonus of up to $250 as part of their Winter Bonus Blast promo. But you had better act fast — the offer expires on 12/31/08.

Here’s the scoop… They’re currently paying 3.06% APY for accounts with a balance of at least $10k as well as the aforementioned bonus for new account holders. The amount of your bonus will be based on your average daily balance from 1/1/09 through 2/28/09, as follows:

• $10,000 = $50 bonus
• $20,000 = $100 bonus
• $30,000 = $150 bonus
• $40,000 = $200 bonus
• $50,000 = $250 bonus

Getting the bonus

1. Open an account with WT Direct using the promo code WTG3DNC
2. Fund it by initiating an online transfer before 12/31/08
3. Maintain an eligible average daily balance through Jan/Feb
4. Your bonus will be deposited in your account in mid-March

There are no fees associated with this account, and there is no minimum balance requirement, though you have to keep at least $10k in place to get a decent APY. You also have to keep an average of at least $10k in the account through Jan/Feb in order to qualify for the bonus. If you’re looking for a high yield savings account and can meet the requisite thresholds, you should definitely check it out.