How Much Tax Is Withheld for Wages for SS?
Social Security taxes that are collected from the working population to pay for the benefits paid to retirees. The Social Security tax has been collected on employee income since 1937, when the tax was only 1 percent. Self-employment income has been subjected to the Social Security tax since 1957.
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Function
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Social Security only applies to earned income, which includes money paid for work performed. Social Security is not withheld from interest, dividends or other unearned income. When you work as an employee, the money is automatically withheld from your paycheck by your employer. However, if you are self-employed or work as an independent contractor, you will not have any Social Security taxes withheld from your wages. However, you are still responsible for paying these taxes through estimated tax payments.
Size
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The Social Security tax may not apply to all of your income. As of 2010, this tax only applies to the first $106,800 of your income. If you have income from both self-employment and traditional employment, the traditional income is used to meet this limit first. For example, if you earned $90,000 from your traditional employment, only the first $16,800 of your self-employment income would be subject to the Social Security tax. The $106,800 amount will adjust in future years for inflation.
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Features
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The percentage of the Social Security tax that you have to pay depends on whether your wages are from self-employment or traditional employment. As a traditional employee, you share the Social Security tax burden with your employee, evenly split. As a self-employed individual, you bear the responsibility for the entire amount yourself. As of 2010, the total Social Security rate equals 12.4 percent, meaning employees pay 6.2 percent and self-employed people pay 12.4 percent. Though this amount is subject to change, it has been 20 years since it was adjusted.
Considerations
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If you are self-employed, you must calculate your Social Security taxes on your own as part of the self-employment tax. To do so, you must first calculate your self-employment income using Schedule C or Schedule C-EZ and then form 1040-ES to figure the taxes. You must make payments to the IRS on at least a quarterly basis for the taxes that you owe.
Potential
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In 2010, the Bowles-Simpson blueprint for stabilizing the debt includes a proposal to raise the amount of income subject to Social Security taxes significantly as opposed to the current model of increases being tied to inflation. The proposal suggests raising the amount subject to Social Security taxes from $106,800 in 2010 to about $190,000 by 2010.
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