Which deduction is not subject to FICA tax?

The choice of MGIB deduction as not subject to FICA tax can be understood through an analysis of what FICA covers. The Federal Insurance Contributions Act (FICA) tax applies to wages paid to employees and is used to fund Social Security and Medicare. Different types of compensation and deductions are treated differently under this law.

The MGIB, or Montgomery G.I. Bill, deduction is a voluntary program allowing service members to contribute a portion of their pay to receive educational benefits after their service. Because it is an optional contribution made for future benefits rather than a direct wage or salary, the amount deducted for the MGIB does not fall under the definitions of taxable wages subject to FICA.

In contrast, other options listed provide compensation or allowances tied to the service member’s salary or are benefits provided as a result of service. The Basic Allowance for Housing, for example, is considered a part of a service member's compensation package and is therefore subject to FICA, as it is a component of their overall compensation structure.

Allotments for savings are also deducted from a service member's gross pay and would be subject to FICA, as these are direct deductions from earnings. Lastly, the service member's retirement pay is treated differently and is generally not