Is Social Security Tax Paid by the Employee in Reportable Income?
As an employer or an employee, it is important to understand what constitutes reportable income. A misrepresentation to the Internal Revenue Service could lead to payment of excess taxes or fines and penalties because of not paying enough. In the case of Social Security, it is also a determinant of how much you will receive from the government when you retire.
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FICA Taxes
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Most employees are subject to Medicare and Social Security taxes under the Federal Insurance Contributions Act. The employee usually pays for one half of the Social Security tax, while the employer pays for the other half in most year. However, in 2011 the employee tax rate for Social Security is 4.2 percent on the first $106,800 of his salary. The employer rate is 6.2 percent.
Reportable Income
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To ascertain whether you paid the appropriate amount of Social Security taxes during the year, as an employee or an employer, you must report all income to the IRS. Reportable income is the amount of compensation and other income that you earn, or pay, prior to reductions for taxes and pretax contributions to health savings, retirement or other accounts.
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Reporting Income on Form W-2 or W-3
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As an employer, you issue and mail a Form W-2 or Form W-3 to each employee at the end of the tax year. This form provides all information related to the employee's earnings, payroll taxes and withholding for contributions to health savings or retirement accounts. The income, wages, tips or commissions that you report to the employee in Box 1 on either form is the total taxable amount prior to any withholdings. The Social Security taxes withheld are reportable in Box 4.
Reporting Income on Form 1040
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As an employee, you report your income, tax deductions and tax credits on Form 1040, Form 1040-A or Form 1040-EZ. On line 1, you report the wages, tips and commissions that you receive from your employer or job prior to any reductions for taxes that you paid. You find this amount in Box 1 of the Form W-2 or W-3 that your employer gives to you. On line 44 you report all of the taxes on your taxable income, which includes withholdings for Social Security.
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