Tax Deduction Consulting: Social Security Deductions Wasilla AK
Tax Deduction Consulting: Social Security Deductions
Maximum Social Security Deduction
A discussion of the maximum social security deduction would most often center on self employed workers. Employed workers are not allowed to use social security taxes as an itemized deduction.
The Government does not trust us to pay our taxes at the end of each year and so we are on a pay as you go basis. This is the reason for pay roll deductions. New workers are always a little shocked when they get their first paycheck and discover the amount they are actually paid is considerably less than they actually earned. The difference is the Federal, State, and FICA taxes that are withheld from your pay. These taxes are withheld by the employer and sent to the IRS each quarter. The FICA deduction, which includes both social security tax and Medicare tax, amounts to 7.65% of your earnings. There is no maximum social security deduction when computing this withholding figure.
There is, however, a limit on the social security portion. You are only required to pay this tax on the first $97,500 of income each year. If you are fortunate enough to be earning over this amount, the tax will no longer be deducted once the limit is reached. The social security portion of the FICA tax equals 6.2%. The other 1.45% for Medicare has no income limit at all. You continue to pay it regardless of income limit.
Self employed workers are required to pay a Self Employed Workers Tax (SE) that is 15.3% of their income. This is for the FICA taxes as well and, at first glance, it appears they are paying twice as much as an employed worker. This is because the employer is paying an additional 7.65% for their employees. In order to create a bit of parity for the self employed worker who is stuck with the entire amount, 50% of his social security and Medicare taxes may be taken as an itemized deduction when he files his tax return.
The employed worker is not allowed to deduct his FICA taxes from his taxable income as an itemized deduction. Since certain ...