Do You Pay Income Tax on Withheld Social Security Tax?
Most working Americans pay federal income taxes, and quite a few pay state and local income taxes. Wage earners also contribute a portion of their income to the Federal Insurance Contributions Act tax that funds Social Security and Medicare. FICA taxes appear on a wage earner's check stub separate from federal, state and local income taxes.
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FICA Taxes
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Wage earners pay income tax on gross income, which includes all wages paid to the employee. Since Social Security and Medicare taxes are figured on gross earnings, taxpayers pay federal, state and local income taxes on Social Security and Medicare taxes withheld. In some cases taxes are assessed when Social Security benefits are paid out, making it necessary for taxpayers to pay income tax a second time on money previously earned.
Tax Rate
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Unlike most taxes, which continue throughout the tax year with no regard to the amount of wages earned, Social Security tax is computed on the first $106,800 of a wage earner's salary in 2010. An employee pays 6.2 percent and the employer pays 6.2 percent of the 13.4 percent total Social Security tax as defined by the tax code. Medicare is taxed at 2.9 percent, with the employee paying 1.45 percent and the employer responsible for 1.45 percent. No wage limit is applicable to Medicare tax payments. The American Recovery and Reinvestment Act of 2009 reduces the Social Security tax percentage for employees to 4.2 percent in 2011. The employer portion remains at 6.2 percent. The contribution and benefit base, which is computed on the national average wage index, remains at $106,800 in 2011.
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Self-Employed Taxpayers
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Self-employed individuals pay self-employment tax under the Self-Employment Contributions Act of 1954, which makes self-employed people responsible for the entire percentage of Social Security and Medicare taxes, or 15.3 percent in 2010. Under ARRA's guidelines, the self-employment tax reduces to 13.3 percent in 2011. Social Security income limits are the same for self-employed people as for those who work for others. Since the employer half of Social Security and Medicare taxes are not recognized as income, and therefore not taxed for wage earners who work for someone else, self-employed taxpayers can deduct the employer portion of the self-employment tax from the gross income figure on the tax return to arrive at the adjusted gross income.
Taxing Benefits
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To determine if Social Security benefit payments are taxable, recipients must consider income and filing status. To figure taxable income, take one half of the total Social Security benefits received, add to that number all taxable pension and dividends received, interest credited and any wages earned. Those who file as married filing jointly escape federal taxes if the total income amount is under $32,000; for single filing status or married filing separately and living apart from a spouse for the entire year, the amount reduces to $25,000; those who claim married filing separately and live with a spouse at anytime during the year must pay federal tax on all income received. Generally, if Social Security benefits are the only source of household income, taxes will not apply and the recipients probably will not have to file a federal income tax return.
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