Can I Include Social Security Withheld as a Deduction?
Social Security is a pension system run by the federal government. This system places the government in total control over a portion of your income that you make each week. The government manages this money, and promises to pay out a benefit payment when you retire. When the government withholds money for Social Security tax, you're not allowed to claim this as a deduction.
Other People Are Reading
-
Significance
-
Social Security tax differs slightly from contributions you make to retirement plans. Even though Social Security is designed to be a retirement pension for everyone who earns money from working during their lifetime, the system does not allow for deductions. Your gross income is calculated, then a tax is assessed on your gross income amount.
Benefit
-
Even though you cannot deduct the tax from your gross income, this gives you more money contributed to the Social Security system than you otherwise would have. In theory, this should translate to a higher retirement income when you go to claim benefits. Your Social Security benefits, along with Medicare, allow you to retire with a basic level of income and health-care benefits.
-
Disadvantage
-
Because you cannot deduct these tax payments, your gross income is higher than it would otherwise be. You may want the additional money to invest for yourself. The government, unfortunately, does not allow this as an option. Since your Social Security payments are set in advance based on the money you contribute and the amount of time you work before retiring, you are forced to accept the payments the government issues to you. This could result in a retirement income lower than what you could have had if you did better in your private investments than what Social Security returned to you. You also have lower net income due to the fact that all Social Security tax payments are made after-tax, as opposed to pretax, like other retirement-plan contributions.
Consideration
-
You should consider saving additional money on top of Social Security tax payments you make to the government. Social Security was never meant to provide all of your retirement income. Instead, you should have a pension and personal savings. If your employer does not provide a pension, you'll need to save an additional amount to make up the difference that your employer isn't providing.
-
