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Social Security Taxes in 2008

Written by Nickel - 15 Comments

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 nugget… 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.

Published on December 27th, 2007
Modified on December 30th, 2008 - 15 Comments
Filed under: Taxes

About the author: is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!

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15 Responses to “Social Security Taxes in 2008”

  1. 1
    jim Says:

    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. :)

  2. 2
    Honest Dollar Says:

    To 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.

  3. 3
    ro Says:

    the limit is for individual I suppose? For a family you multiply it by 2.

  4. 4
    nickel Says:

    ro: It’s not a family limit per se. This limit is per person earning Social Security benefits.

  5. 5
    geo Says:

    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.

  6. 6
    SecondCor521 Says:

    A 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

  7. 7
    Foobarista Says:

    Personally, 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.

  8. 8
    Michael B. Rubin Says:

    More (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.

  9. 9
    Daniel Says:

    @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. :(

  10. 10
    Crandall Says:

    [" 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
    than they pay in income taxes.

  11. 11
    Bryan Decelles Says:

    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.

  12. 12
    Diane Says:

    I came here looking for information on the fantasy that the SS tax is for our retirement security. They don’t want to let us control our own investments because we are too stupid to be trusted not to lose it. But I have heard figures that I am trying to confirm: like contributions in a private fund VS SS brings in $2,500/mo VS $500/mo. And that they (our representatives; I call them masters) are “borrowing” (I call it stealing) out of the SS fund every month, like it is their piggy bank. Hard to earn interest on an IOU. But what do they care? Legislators retire on full income for life w/staff.

  13. 13
    Douglas Du Bois Says:

    I want to know how much did Social Security payed out in 2008.
    I also want to know how much the Treasury Department owes Social Security.

    Douglas Du Bois
    665 Lemoine Cut Off RD
    Colfax, La. 71417
    email dud102@hughes.net

  14. 14
    Douglas Du Bois Says:

    I sure would like to have a answer to my questions.

  15. 15
    taxpayer II, US Says:

    I operate a small contruction business and provide miscelleanous services for a business that issues a W2 from showing deductions for Fed Withholding, Social Security taxes, State disability Ins., and Medicare withholding taxes.My hours are long equivalent to 6 days a week out of 7. On my 1040 SE form..I also pay a tax on my net operating Income which is obtained from my Profit and Loss Statement. My tax could be $800 with a 50% deduction of that equaling $400 on my 1040 tax return (line 27) and the $800 payable under 1040 tax return (line 57).
    My question is… Can the tax deductions itemized above
    be deducted as “listed taxes expensed ???

    I paid them in form of a deduction from the Gross pay that was due to me PRIOR to the taxes being deducted from my pay by my business client.

    Let me know if Taxes Expense can be used to accumulate those aforementioned ..payroll tax deductions..and be deducted from my Gross operating Income.
    Note: Wages are not included in Gross operating Income
    the figure is shown on 1040 Tax return Line 7.

    hope you understand this presentation.. would appreciate your suggestion on this matter before tax due date next year.

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