R6: Federal Laws & Regulations

Federal Insurance Contributions Act (FICA)

provides workers & their dependents with benefits in case of death, disability, or retirement

• all full-time & part-time employees must participate

• self employed must participate if their income > $400 per year

• FICA is funded by taxing income earned from labor

  • Social Security & Medicare

  • funded by employers & employees

FICA → employer responsibility

• employers must match their employees’ contributions to Social Security & Medicare

  • no employer match for additional 0.9% Medicare tax

• employer that fails to withhold the employee’s contribution is liable to pay employee’s 1/2, but has a right to reimbursement from the employee

• penalties apply to employers who fail to make timely FICA deposits

FICA → employee responsibility

For 2025:

• employees liable to make Social Security contributions of 6.2% of their gross wages up to $176,100

• Medicare contributions of 1.45% of their entire gross wages

  • >$200k single & $250k MFJ, extra 0.9% on excess of threshold

• gross wages doesn’t include gifts, interest, or dividends

FICA → self-employed people

• must pay employer & employee portion (15.3%)

• imposed on only 92.35% of net profits & only if that amount exceeds $400 in a year

• someone sitting on a board of directors = self-employment income

FICA deductibility by employer

• deductible as a business expense for employer

• non-deductible for employee

• ½ deductible for self-employed taxpayer

FICA benefits

disability pay, retirement pay, survivor’s benefits, dependent’s benefits, medical benefits under Medicare

unemployment compensation (FUTA)

• establishes a state-run system of insurance to provide income to workers who have lost their jobs

• all employers who have quarterly payrolls of at least $1,500 or who employ at least 1 person for 20 weeks in a year must participate

• self-employed taxpayers don’t participate

• deductible to the employer as a business expense

FUTA funding

• generally assessed only against the employer

• FUTA tax rate is currently 6.0% on the first $7k per year per employee

• employers can get a credit against federal tax due for payments made on account of SUTA of up to 5.4% of the first $7k

  • state rate can be reduced if the employer has a below-average rate of unemployment claims from prior employees

workers’ compensation

• state-run programs designed to enable employees to recover for injuries incurred on the job

• employers strictly liable regardless of fault

• most employers must participation & employers fund workers’ comp by purchasing insurance from the state or a private carrier

  • exempt: agricultural, domestic, & casual (temporary) workers; public employees, & independent contractors

• deductible by the employer

Affordable Care Act (ACA)

• seeks to improve access to healthcare in the US by providing workers with access to affordable healthcare coverage

  • plan provided by employer

  • plan purchased through Health Insurance Marketplace

  • coverage provided through a government-sponsored program

  • direct purchase by the employee from an insurance company

• a dependent can stay on parent’s insurance until age 26

• employers will pay penalty if they don’t comply with ACA

*employer & employee must participate (employer must have 50 or more employees)

ALEs

• applicable large employer (50 or more full-time employees)

• required to provide full-time employees the opportunity to purchase affordable minimum essential health coverage for themselves & their dependents

• tax-exempt organizations & governments can be ALEs

  • full time = avg of 30 hours a week or 130 hours a month

affordability of health insurance

considered affordable if the employee’s contribution to the plan doesn’t exceed 9.5% of the employee’s household income for the tax year

ACA benefits

• deductible to the employer

• sets national standards for how health insurance is structured & priced

• places new reqiurements on individuals & employers

• ACA makes it illegal for an insurer to deny coverage to individuals with pre-existing conditions or to charge more for their coverage

penalties for failure to comply with ACA (penalty type 1)

• penalty type 1: if ALE doesn’t offer coverage to at least 95% of its full-time employees & at least 1 full-time employee receives the premium tax credit for purchasing coverage through the marketplace

  • payment penalty of $2,900 for each FT employee, first 30 employees excluded

penalties for failure to comply with ACA (penalty type 2)

• penalty type 2: ALE offers coverage to at least 95% of its FT employees & employee gets insurance through the marketplace

  • payment penalty of $4,350 for each FT employee who receives the premium tax credit

premium tax credit

• refundable credit that helps eligible lower or moderate-income taxpayers cover the premiums for their health insurance purchased through the marketplace

• for those earning between 100-400% of the federal poverty level

premium tax credit eligibility

• household income that falls between 100-400% of federal poverty level

• can’t use MFS status

• can’t be claimed as a dependent

• must be enrolled in health insurance coverage through the marketplace for at least 1 month

premium tax credit benefit

amount of credit depends on income, cost of the plan, taxpayer’s address, & the size of their family

• credit can be received monthly or taken as a refundable credit against federal taxes

foreign corrupt practices act

• prohibits the payment of bribes to foreign officials to assist in obtaining or retaining business

• elements of a violation

  • act applies if bribe was made through any transaction involving interstate commerce (email, phone call, mail)

  • bribes include the offer of anything of value

  • act also covers payments or promises made to someone other than a government official

• violations are punishable by civil fines of up to 2x the amount of the benefit expected