Social Security Tax Forms

What to Do With Social Security Tax Forms You Get in the Mail

Did you get a Social Security tax form in the mail?

Chances are you’re talking about a SSA-1099, which is your statement of Social Security benefit income.  If you are receiving Social Security benefits then each year you will receive IRS Form SSA-1099.  That’s because your benefits are considered income by the IRS and you may need to pay income tax on your benefits.  Even if you don’t end up having to pay taxes on them, you still need to include on your 1040 the amounts shown on the Social Security tax forms you get from the Social Security Administration.

The Social Security 1099 Form

If you are getting your Social Security benefits then you will  have to use IRS Form 1040A or 1040 to file your federal income tax return.  Use SSA-1099 to report the amount that was paid to you for that tax year.  It goes on line 14a of IRS Form 1040A…use box 5 on your SSa-1099 to get the correct amount to report.

Would You Like the SSA to Withhold Taxes on Your Social Security Benefits?

You can choose to have taxes withheld from your Social Security checks each month.  Use IRS Form W4-V to indicate how much you’d like taken out.  This is called voluntary withholding.  The choices are as follows:

  1. 5%
  2. 7%
  3. 15%
  4. 25%

When are Social Security Benefits Not Taxable?

You don’t have to pay income tax on your Social Security benefits if you make under a certain amount of income annually.  These thresholds are as follows:

  • if you are single and total income is under $25,000 then you do not have to pay income taxes on your Social Security benefits
  • the threshold amount for married filing jointly is $32,000

If You Make Too Much, They Take Most of it Away!

That’s right, if you are single and your total combined income for the year is over $34,000 then your Social Security tax rate is 85%.

your Social Security tax rate is eighty five percent if you make over $34,000!

That is the IRS’s way of telling you that you don’t need Social Security benefits.  For this reason, retirees who have part time jobs usually don’t want to make too much money, or they’ll “lose” their benefits.  After all, the Social Security system was designed as a safety net, so if you don’t need it well…someone else surely does, you can count on that, whether or not you or anyone else believes it to be fair!

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Understanding Social Security Tax Withholding

You may be wondering how the Social Security tax withholding is calculated on each of your paychecks.  Denoted as FICA on your paycheck, the Social Security tax is required by law, of all who earn income.

Social Security Tax Withholding is Called FICA

The FICA that’s taken out is a combination of Social Security tax and Medicare tax…both of which are designed to help you get through retirement via monthly benefits.

  • Social Security tax funds the  Old-Age , Survivors, and Disability Insurance (OASDI) program.
  • Medicare tax funds the Hospital Insurance (HI) program.

Together, Medicare and Social Security tax withholding form what’s commonly known as the Employment tax.

How Your Employer Calculates the Social Security Tax Withholding

It can be outsourced to a payroll company, but many small business employers figure out the withholding amounts themselves, in order to come up with your paycheck each pay period.  They may use tax withholding tables to help them figure out the amounts.

The tax withholding tables are published new for each year in December for the following year.  Look for IRS Notice 1036, where they are officially announced for the first time.  They will be then released again in IRS Publication 15 (Circular E), which is the Employer’s Tax Guide.  Both are found at www.IRS.gov

Percentage Method for Social Security Tax Withholding

The employer simply takes your check amount and does the following, in order to use the Percentage Method for figuring withholding:

  1. start with amount of check
  2. finds out number of allowances for that employee (look on W4 Form)
  3. multiply allowances x value of each allowance  (from income tax tables)*
  4. subtract that number from the wages
  5. look up the resulting amount on the “Percentage Method Tables for Income Tax Withholding” found in Notice 1036 or Pub 15.
  6. Use the formula and amounts shown for that paycheck range, to figure withholding

*For example, in 2014, one withholding allowance is worth $151.90 on a Biweekly paycheck.  These dollar amounts vary according to how often the paychecks go out.  For a weekly payroll period, each allowance is worth $76.

Social Security Tax Withholding is Based On…

These calculations for withholding are based on a 6.2% rate taken out of your paycheck.  That’s your contribution for employment taxes.  Your employer will also pay that same amount, for their share of the employment tax.  Their share is equal to your share, 6.2%.

In 2011 and 2012 the employee portion of Social Security tax withholding went down by two percentage points to 4.2%.  The rate is now fixed at 6.2% and will likely remain at that rate for quite some time.  The Social Security tax rate doesn’t change all that often.

 

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The Social Security Tax Rate: a Constant in a Sea of Change

The Social Security Tax Rate is Very Stable

The Social Security tax rate stays the same from year to year.  There was a two-year period (2011-2012) where there was a reduced rate for what employees paid into OASDI*, but that has ended.  Now, the rate is back up where it has been since 1990: 6.2% The other portion of what makes up the Social Security tax is Medicare, which did not see a reduced rate during those two years.

That’s right: the OASDI portion of the Social Security tax rate has remained unchanged for over two decades (with the short-term exception from 2011 to 2012). Medicare is even more stable: it has remained unchanged for almost three decades now!

since 1986 the Medicare tax rate has been a constant 1.45% of income

The Social Security tax rate was written in law after the Great Depression and first went into effect in 1937.  Cost of Living increases on the benefits, the tax rate and other rates are set by the law.

Why Did the Social Security Tax Rate Change for Two Years?

The only reason the Social Security tax rate changed during 2011 and 2012 was due to the government’s plan to assist the economy after the Great Recession.  By putting more money back in the pockets of taxpayers, it’s thought to stimulate buying, which would then stimulate the economy.

There is a Slight Change in Medicare For Wealthy Taxpayers

Although the 1.45% rate has not changed, there is now an additional Medicare tax for wealthy taxpayers.  This started in 2013, and is a permanent part of our tax code, as a provision of the Affordable Care Act (ACA).  It is additional tax applied on wages, self-employment income and railroad retirement (RRTA) income over a certain amount.

The additional medicare tax is 0.9% of wages over the threshold amount.  The threshold amount depends on tax filing status:

  • Married Filing Jointly:  $250,000
  • Married Filing Separate: $125,000
  • Single:  $200,000
  • Head of Household:  $200,000
  • Qualifying widow or widower with a dependent child: $200,000

That means all income up to those thresholds will be taxed at the normal 1.45% rate.  All income over the threshold amount will be taxed at the 0.9% rate.  A single person with an annual income of $250,000 will be taxed for Medicare as follows:

1.45% of $200,000 = $2900

0.9% of $50,000 = $450

total Medicare tax: $3350

Rules and more information on this and the Social Security tax rate in general can be found in IRS Publication 15 (Circular E), called the Employer’s Tax Guide.  This is updated every year and covers everything employers need to know about their tax obligations with the IRS.

 

*OASDI: Old-Age, Survivors, and Disability Insurance

 

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Everything You Need to Know About the Social Security Tax

If you work in the US then you must pay Social Security Tax.  Not only that but you must also pay Medicare Tax.  If you are a regular employee of a company then this is done for you automatically.  The payroll department calculates how much to withhold and adjusts your paycheck accordingly.  Then they fork it over to the US Treasury on your behalf and this becomes your contribution to the Social Security system.  When you retire, you will be able to take advantage of the system by receiving Social Security checks based on your life wages.

Employer Contributions to the Social Security System

Your employer sends your wage contributions for you, and then matches them so the money that goes into the system is actually double what’s taken out of your paycheck.  So, if your pay stub shows that you paid $150 to Social Security taxes, then for that pay period the actual amount that went to the Treasury on your behalf was $300, or double.  Your employer is bound by law to pay that other half.

Again, same goes for Medicare Tax.  You pay half in pre-tax wages and your employer pays the other half.

Social Security Tax and the Self-Employed

What if you work for yourself?  Then, lucky you!  You get to pay both halves of the Social Security Tax and the Medicare Tax.  Now it’s called the Self-Employment Tax but it’s really the Social Security Tax and Medicare Tax, times two.

Any self-employment income over $400 for the year is subject to Social Security Tax (& Medicare tax).  You report this on Schedule SE (stands for “self employment”), which attaches to your 1040.  You cannot use the 1040 EZ if you are self employed.

While it really isn’t great that you basically pay double in Social Security taxes when you work for yourself, there is one good bonus: you get to deduct the employer’s share of the taxes paid.  So, if you pay $8000 in a year for the employer’s half of Social Security taxes, that much gets lopped off your taxable income.  That’s a pretty good savings but obviously not as great as not having to pay the tax at all.

What’s the Social Security Tax Rate?

For employees who receive wages, and whose employers perform withholding on their paychecks, the Social Security tax rate is 6.2%.  That’s fro Old-Age, Survivors, and Disability Insurance (OASDI).  The Medicare tax rate is 1.45% (that’s for Hospital Insurance).  That’s a total of 7.65% of wages paid for taxes.  Again, the employer pays that too.

Since self-employment tax rate is double that, the self-employed pay 12.4% and 2.9%, respectively.  That’s a total of 15.3% paid out of income to Social Security and Medicare Taxes.

Those rates are for 2013, 2014 and on.  For a short time the employee’s half was reduced to 4.2%.  This was for tax years 2011 and 2012 only.  The employer’s half remained at 6.2%.

The tax for Social Security applies to all earnings up to $117,000.  Any income above that and it’s not taxed.  Not so with the Medicare tax, however.  This tax applies to all earnings with no limit.  In addition to that, there is now an Additional Medicare Tax, which applies to high-income earners.  This is an additional .9%.

What Will the Social Security Tax Give Me When I Retire?

When you retire, you’ll start getting your Social Security check (or direct deposit).  There’s a maximum benefit of $2,642 per month.  That goes up 1.5% each year to adjust for cost of living. Full retirement age is 66.  You can wait until your full retirement age to get the maximum benefit or you have the option of retiring early but taking smaller Social Security benefits each month.

Where Do I Find Out About Social Security?

The Social Security Administration is the federal government office in charge of benefits.  You should get a statement each year in the mail, outlining how much you’ve paid into the system year by year.  The statement will give you your benefit amount for different retirement ages, based on the amount you’ve worked to date.  Their website is www.ssa.gov.

You can apply for your Social Security benefits online, use the Retirement Estimator, or learn about Social Security through the many articles and pamphlets available for download.  It’s a very useful site and it’s designed to be user-friendly so check it out.

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