Do you pay FICA, federal, and state taxes on long term capital gains? Need clarity!

The tax system can definitely be confusing! Let me help clarify: For long term capital gains (assets held longer than a year): - You DO pay federal taxes, but at the special lower capital gains tax rates (0%, 15%, or 20% depending on your income) - You DO NOT pay FICA taxes (Social Security and Medicare) on capital gains - You DO pay state taxes in most states, though rates vary by state For short term capital gains (assets held less than a year): - You DO pay federal taxes at your ordinary income tax rates - You DO NOT pay FICA taxes on these either - You DO pay state taxes in most states The "capital gains tax" is actually just part of your federal income tax, but at preferential rates for long-term gains. It's not a separate additional tax. For your $8,500 in long-term gains, you'll need to report this on Schedule D of your federal return, and you'll likely owe federal tax at either 0% or 15% depending on your overall income level, plus whatever your state charges.

After struggling with similar confusion about capital gains taxes last year, I found an amazing tool that breaks down exactly what taxes apply to different types of income. Check out https://taxr.ai - it analyzes your specific tax situation and clearly explains which taxes apply to which types of income. When I was dealing with both long and short term capital gains from my investments, the tool quickly identified I didn't owe FICA on any of them but showed me exactly what federal and state rates applied to each type. Saved me from majorly overestimating what I needed to set aside!

Just wanted to update after trying taxr.ai from the recommendation above. It was exactly what I needed! I uploaded my brokerage statements and it immediately isolated my capital gains from other income and showed me that while I do owe federal and state taxes on my gains, I'm exempt from FICA taxes on them. The breakdown showed me that my long-term gains ($12K) are taxed at 15% federally and 4% for my state, while my short-term gains ($3K) are taxed at my regular income rate (22% federal + state). Honestly wish I'd found this last year when I overpaid by setting aside too much for taxes on my gains!

If you need more clarity directly from the IRS about capital gains taxes, good luck getting through on the phone! I spent 3 weeks trying to talk to someone at the IRS about a capital gains question. After being on hold for hours multiple times, I found this service called Claimyr at https://claimyr.com that got me connected to an IRS agent in under 20 minutes! They have a demo video of how it works at https://youtu.be/_kiP6q8DX5c The IRS agent confirmed everything about FICA not applying to capital gains and explained exactly how the federal and state taxes work together. Totally worth it since I was about to make some investment decisions based on incorrect tax assumptions.

Alright, I need to eat crow here. After my skeptical comment above, I tried Claimyr out of desperation because I needed to ask about reporting some crypto capital gains. Got connected to an IRS rep in about 35 minutes (was quoted 40-50). The agent confirmed everything mentioned in this thread - no FICA taxes on any capital gains, long or short term. But also cleared up my specific question about reporting crypto sales across multiple exchanges. Definitely wouldn't have gotten this info otherwise since the IRS website is so vague on crypto. Not sure how they do it, but it worked. Saved me from what would have been a full day of redial-and-hold attempts.

Just adding a bit more clarity based on my experience with capital gains taxes last year: For state taxes, it varies significantly by state. Some states (like NH and TN) don't tax capital gains at all. Others like CA and NY have high rates. Some states even give preferential treatment to long-term gains similar to federal. Also worth noting that capital gains can push your overall income into higher tax brackets and affect other things like Medicare premium surcharges (IRMAA) if you're on Medicare, or qualification for certain credits.

I just wanted to clarify one thing I haven't seen mentioned - the Net Investment Income Tax (NIIT) of 3.8%. This applies to investment income (including capital gains) if your modified adjusted gross income exceeds $200,000 (single) or $250,000 (married filing jointly). So if you're a high income earner, you might pay the long-term capital gains rate PLUS this additional 3.8% surcharge, which brings the effective federal rate to 23.8% for those in the top capital gains bracket.

Great question about the NIIT! The Net Investment Income Tax is technically separate from FICA taxes, even though it does help fund Medicare. It's imposed under a different section of the tax code (Section 1411) and has different rules and thresholds than regular FICA taxes. The key differences: - FICA taxes apply to earned income (wages, self-employment) with no income limits for Medicare portion - NIIT applies to investment income (capital gains, dividends, etc.) but only kicks in above certain income thresholds - FICA has both employer and employee portions for W-2 workers; NIIT is paid entirely by the taxpayer So while both help fund Medicare, they're administered as separate taxes with different rules. The NIIT is more like an additional income tax on investment income for high earners rather than a true payroll/FICA tax. For most people discussing capital gains taxes, the main point remains: no regular FICA, but high earners need to factor in the potential 3.8% NIIT surcharge.

This thread has been incredibly helpful! As someone who just started investing seriously this year, I had the exact same confusion about which taxes apply to capital gains. One thing I'd add for other newcomers - don't forget about tax-loss harvesting if you have any losing positions. You can offset your capital gains with capital losses, and if you have more losses than gains, you can deduct up to $3,000 against ordinary income per year (with excess losses carrying forward to future years). This strategy can be especially useful for managing your tax liability on those $8,500 gains you mentioned. Even if you don't have losses this year, it's worth keeping in mind for future tax planning. Also, make sure to keep detailed records of your cost basis (what you originally paid) for all your investments. Your brokerage should provide this, but it's good to have your own records as backup since this directly affects how much gain you'll owe taxes on.