As Proposed in the Alabama Legislature’s First 2015 Special Session
HB24 by Rep. Paul Beckman, R-Prattville

Alabama is one of just a four states (AL, IO, MA and MO) that allow any state income tax deduction for the Federal Insurance Contribution Act, or FICA, taxes withheld from wages and one of only two (AL and MO) that allow that deduction for the full amount of taxes withheld from wages and the full amount of FICA taxes paid on self-employment income.

FICA is a 15.3 percent payroll tax split evenly between employees and employers. The revenue generated pays for Medicare and Social Security. The Social Security portion is 12.4 percent on the first $118,500* of earned income and the Medicare portion is 2.9 percent. Employers and employees as well as self-employed individuals pay 6.2 percent each to Social Security and 1.45 percent each to Medicare.

This legislation:

• Would remove Social Security taxes paid (6.2% of gross wages) as a deduction from the state individual and self-employed income tax.
• Leaves intact the 1.45 percent Medicare tax deduction.
• Was part of Gov. Robert Bentley’s call for the special session that began July 13 and ended Aug. 11, 2015.
• Was never even debated by the House Ways and Means General Fund Committee, but reportedly efforts were made in the final weekend before the special session ended to gather enough votes in the House to pass the legislation. The governor was seeking a commitment in writing from the House leadership
• Was estimated by the governor to generate $182 million, but no fiscal note was attached to the bill.
• Would cause taxpayers to pay, at the most, $276 more in income taxes, the governor said. See Estimated Impact of Repealing 6.2% FICA Deduction.

According to the governor, individuals unaffected by this change would be:

• Taxpayers who do not itemize, about half of Alabama taxpayers.
• Those who do not pay Social Security tax, including retirees.

* Eligible income for 2015. The eligible income is adjusted each year for inflation.