Social Security Taxes in 2008
Here’s a little nugget of information on the social security tax… In case you weren’t aware, every time you pay Social Security or Medicare taxes at your regular job (assuming you have one), your employer pays an equal amount on your behalf. But if you’re self-employed, you “get to” pay both shares yourself. And were not talking about a trivial amount of money, either. Social Security taxes currently stand at 6.2%, with Medicare adding another 1.45%. So self-employment income is subject to a 15.3% hit in addition to plain old income taxes — it’s not pretty.
Now for the good news… If you make enough money, the Social Security part of that equation goes away, although the definition of “enough money” changes every year. In 2006 it was $94,200, in 2007 it was $97,500, and in 2008 it will be $102,000. So… Every dollar over $102,000 that you earn in 2008 will be free of the 6.2% (or 12.4%) Social Security hit, although it will still be subject to the Medicare portion (1.45%, or 2.9% for self-employed).
Another little nuggest… If you worked more than one job during the year, it’s possible that you’ve overpaid your Social Security taxes… So when you get your W-2 forms at the end of 2008, add up the values in Box 4 on each. If the total exceeds $6,324.00 (6.2% of $102,000) then you’re due a refund. The only catch is that you have to file IRS From 1040 (not 1040A or 1040EZ) to claim the overpayment.
Obviously this information won’t be of use to everyone, but the social security cap is something to shoot for if you’re not currently in a high enough tax bracket to take advantage of it.
Get via RSS
It’s funny how they forget to index things like AMT to inflation but don’t forget to index things like this, things that would reduce your taxes if they forgot.
Comment by jim — Dec 27th 2007 @ 9:52 amTo add to your point about working more than one job in a year: Not only does FICA (Social Security, Medicare) taxes “reset” when you move to a new job, so you may end up overpaying, but you should be careful if you’ve transferred within a large corporation as well. I work for a large global firm with multiple legal entities for different countries and different businesses, and when people transfer across legal entities, FICA resets as if they had changed jobs.
Comment by Honest Dollar — Dec 27th 2007 @ 10:23 amthe limit is for individual I suppose? For a family you multiply it by 2.
Comment by ro — Dec 27th 2007 @ 10:58 amro: It’s not a family limit per se. This limit is per person earning Social Security benefits.
One more slightly-positive detail: if self-employed, you deduct half of your 15.3% social security tax from your gross income on your return. (This represents the 7.65% portion you normally get from your employer, that is not considered income.) It’s off the top, not an itemized deduction.
Just follow the instructions carefully on your 1040 and you’ll get this.
Comment by geo — Dec 27th 2007 @ 11:53 amA part of your article could be confusing: where you talk about adding up the amounts in box 4 of one’s W-2’s.
For most ordinary folks who will be preparing their 2007 income taxes in a few months, they should use the appropriate Social Security limit for 2007, not 2008 as your article implies. For 2007, the amount is $6,045 ($97,500 * 6.2%).
2Cor521
Comment by SecondCor521 — Dec 27th 2007 @ 2:18 pmPersonally, I think all taxes paid as part of your payroll should be on your paycheck. The notion that SS has some sort of “employer contribution” is an accounting fiction - if you didn’t have the job, the employer wouldn’t pay it, so it’s part of your compensation package.
Part of being an informed citizen is knowing how much you pay in taxes. But it’s in the interest of politicians to make it seem that it’s those evil rich guys, not you, paying taxes.
Comment by Foobarista — Dec 27th 2007 @ 3:02 pmMore (not so) fun facts: the employee-paid portion of your Social Security and Medicare taxes are also not deductible from your regular income taxes.
What does that mean?
It means you pay tax on a tax. If your gross pay is $100 and Social Security takes $6.20, you pay your federal income tax (and state income tax too, if applicable) based on the full $100. This means you’re paying income tax on $6.20 of money you never got in the first place (because it was withheld for Social Security).
Then, of course, many of us will get to pay income tax on that Social Security benefit money when it comes back to us during retirement. Almost sounds like triple taxation, doesn’t it?
Scary.
Comment by Michael B. Rubin — Dec 27th 2007 @ 7:40 pm@nickel: well, that really stinks. I keep chasing that cap, always only a few thousand behind it. With my wife’s income this past year, we paid well over the limit, but since the limit is per person, we still have to pay 15.3% each on our full incomes.
Comment by Daniel — Dec 28th 2007 @ 6:44 am[" your employer pays an equal amount on your behalf. But if you’re self-employed, you “get to” pay both shares yourself..."]
You pay the FULL 15.3% FICA tax… whether your a normal employee or self-employed.
It’s a cruel deception for the government to say otherwise — but most Americans… and
especially the American media believe that falsehood completely.
And it’s a very regressive tax, hitting low income wotkers the worst. Many, if not most American workers pay more in these payroll taxes
Comment by Crandall — Dec 28th 2007 @ 6:00 pmthan they pay in income taxes.
I understand that if you as an employee that worked for two companies and make more than the FICA limit you can claim a refund. Does this apply for the two companies as well?
I have worked for 6 months as a self employed and will work for 6 months as and W2 employee for the same company and want to get a refund for the employee and employer side of the FICA after I exceed the limit.
Comment by Bryan Decelles — Jun 6th 2008 @ 8:29 pm