What Are the Income Thresholds for the Social Security Deduction?
U.S. workers typically have social security payments automatically deducted from their paychecks, while self-employed individuals must make their own payments directly. The income threshold for social security deductions changes periodically. As of July, 2011 the employee pays 6.2 percent on an employee's earnings up to $106,800, with the employee paying 4.2 percent of that amount. A self-employed worker must pay 10.4 percent on his earnings. No social security taxes are due on earnings above $106,800.
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Social Security Basics
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Enacted in 1935 during President Franklin D. Roosevelt's administration, the social security program is a social insurance system under which employees and employers contribute a certain percentage of earnings to provide protection in retirement or in certain life-altering situations. According to the Social Security Administration, it was "not and was never intended to be a program to provide benefits based on need." Every worker must pay social security taxes, and so every worker has the right to future benefits, whether financially needy or not.
Criticism
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The fact that social security is not needs-based is partially responsible for the wide public support and acceptance the program has received since the first benefit checks were distributed in the 1940s. Critics decry the benefits paid to high-income people, but the SSA points out that these individuals pay social security taxes and thus contribute to the program's financial base. Other critics contend that, to save the system, the amount of income subject to social security tax should be raised from the current levels.
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Mutiple Employers
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For social security purposes, those who earn more than the annual income threshold but hold more than one job are only charged the maximum amount from the combined earnings, not from each job. All employers must withhold social security taxes from paychecks, no matter what the individual's other employer is withholding. It is thus possible that employees may be paying social security taxes on more than the annual income threshold. When they file their federal income tax returns, these employees may claim a refund of the overage of the taxes withheld.
Weighting of Benefits
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The method used in determining benefits weighs in favor of employees with lower overall lifetime earnings, as well as those with families. The SSA states that this is due to the program's "attempts to achieve social adequacy as well as individual equity." Social adequacy means that workers receive benefit levels reflecting the ability of risk preparation, while individual equity ensures that workers receive reasonable investment returns on their benefits. The replacement rate for social security earnings are approximately 60 percent for those receiving the minimum wage, 42 percent for the average worker, and 26 percent for high-income individuals.
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