Here’s a little nugget of information on the social security tax… In case you werenâ€™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 youâ€™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 — itâ€™s not pretty.
Now for the good newsâ€¦ 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 nuggetâ€¦ If you worked more than one job during the year, itâ€™s possible that youâ€™ve overpaid your Social Security taxesâ€¦ 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 youâ€™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.