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Complete Guide to Social Security Tax, Calculation, and Reporting

Posted on by Dawna M. Roberts in LawFebruary 21, 2023

In 2022 over 66 million Americans received social security benefits each month; of those Americans, 46.7 million were retirees, while the remaining 19.3 million were workers with disabilities, widowers, and survivors. However, the qualifications to become a beneficiary broadened in the 1930s. Since then, health insurance and income benefits for qualifying adults have had prominence in the socio-political environment of the US. 

Lack of knowledge about social security is a problem when only 3.5% of the total population will never receive benefits. Please continue reading to learn everything about your social security tax, including how to calculate and report it.

social security tax

What is Social Security Tax?

“Social security” refers to the benefits a person receives through OASDI, while “social security tax” is the public’s cost. Every person who makes enough money annually ($25,000+) is federally obligated to pay their taxes—including the social security tax; this tax has an active limit, also called a wage base. 

A wage base is the maximum amount of money an individual must make before being exempt from further taxation. Each year Congress meets to adjust the obligatory wage base, so it moves higher annually; for 2023, the wage base was $147,000—while in 2023, it has risen to $160,200. 

How much is social security tax? Congress adjusts the wage base annually, but federal guidelines determine tax cost percentage. Currently, the social security tax takes 12.4% of wages—although how this occurs depends on your employment status. Self-employed people are expected to pay the full percentage, though tax deductions are available. These are also called SECA taxes or Self-Employed Contribution Act taxes. 

Employed workers pay most of their taxes through their monthly paychecks or quarterly IRS payments. Employed workers contribute money alongside their company to meet the 12.4% wage obligation; employees pay 6.2% of their wages from their paychecks—and their employers match their contribution to meet the requirements.

Differences Between Social Security and Medicare Tax

Social security taxes are one of two types of taxes included in the FICA tax. FICA refers to the Federal Income Contributions Act, enacted on payrolls. The other tax included in FICA is the Medicare tax. Unlike the social security tax limit, the Medicare tax does not have a wage base—all wages are taxed with it. Additionally, because there is no wage base, the tax cost percentage is significantly lower than with social security. 

Medicare tax requires 1.45% of all earnings, regardless of being self-employed or hired. Another difference between social security and Medicare is that employers still match the obligatory 1.45%; this makes the overall FICA tax closer to 15.3% for all wages—regardless of a self-employed person. These percentages change with deductions, taxable, and extenuating guidelines. For example, in cases of a person making more than $200,000, an additional 0.9% is applied via the Medicare tax; no employer matches here, and as a result, those individuals pay 16.2% annually. 

How to Calculate Social Security Tax

The amount of taxes you pay depends on your income and filing status. To calculate your social security tax rate, you’ll need to know your (above $25,000 if filing single) annual income. In employed, take your annual income and multiply it by 6.2% (0.062); self-employed people can multiply their estimated annual income by 12.4% (0.124) to determine their obligations:

  • An annual income of $150,000 x 0.124 = $18,600 in social security taxes owed by a self-employed worker
  • An annual income of $120,000 x 0.062 = $7,440 (50% of the total 12.4% obligation, the employer will pay the other half)

Your annual income can also be multiplied by 1.45% (0.0145) to find your expected Medicare taxes. Add the results of your social security and Medicare taxes to find your overall FICA taxes due in a year. It’s worth noting that special circumstances and guidelines also impact these costs; many programs and deductions exist to lower these obligatory tax costs. Self-employed people have particularly good deductions—so take advantage of them if possible. 

Social Security Benefits and Taxable Elements

Those who receive social security benefits may have additional taxable elements to consider. Taxing your social security benefits usually happens when two things occur:

  • You live within states that tax social security, like a property tax.
  • You have a substantial income in addition to those received benefits.

You can pay up to 85% of taxes on your social security benefits—according to guidelines from the IRS. These parameters are determined by your filing status and income, as well as your partner’s if filing jointly. Before filing jointly, calculate your combined income to see the impact on your taxable options; add the adjusted gross income for your household, add in any nontaxable interest, and then half of your social security benefits to find this figure.

  • Filing individuals with a combined income of $34,000 may have up to 85% taxable. 
  • Filing a joint return with a combined income of $44,000 may have up to 85% taxable.
  • Filing as a married person but having an individual tax return, you’ll most likely pay taxes on 85% of your benefits. 
  • Note: Some incomes are never taxable, like Supplemental Security Income (SSI). 

When to Report My Social Security Benefits and How to Pay IRS Bills

As insinuated above, some states do not tax social security, while others do. There are 12 states that tax social security—and the laws are unique for each. These states include West Virginia, Utah, Vermont, Rhode Island, New Mexico, Nebraska, Montana, Missouri, Minnesota, Kansas, Connecticut, and Colorado. Social security tax withholding bylaws are also unique in these locations; the only solution is to do research for your area.

By mailing forms to the IRS, employers must report their FICA taxes and withholdings quarterly. The IRS will then redistribute W-2 and 3s to qualified workers or 1099 forms to contracted self-employed persons. After completing your annual taxes, you will receive a bill or sum from the IRS; this balances your expected contributions with the actual. If the IRS bills you, send payments to them online or by check and mail.

Look at Our Blog for More Reading Material

Social security is one of the vital avenues for individuals needing assistance. Its related taxes are an obligation to all qualified Americans. To read more about the world around you, check out our blog page; you can learn about many topics, like social security number lookup tools (or how to find the criminal records of your neighbors).

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