Is Social Security Taxed?

The Social Security program is funded by the Social Security tax levied on employers and employees. Collection of the Social Security tax is through the self-employment tax or payroll tax. The Social Security program makes disability, survivorship and retirement benefits to millions of Americans each year.

The numbers involved are 62 million and $955 billion. The first being the Americans receiving benefit payments. The second is the Social Security value of benefits in 2017. The Social Security trust fund provides the funds for benefit payment. The trust fund is funded by tax dollars.

Social Security taxes are paid by everyone who earns income, from freelancers to employers. These taxes are not rigidly assessed on every dollar of income. The wage cap allows for a maximum amount of taxes you have to pay.

Social Security Taxes

The people who receive benefits today are paid through the contributions of today’s workers. Social Security taxes go into special trust funds and are therefore used for Social Security benefit payments currently and in the future.

The Social Security tax is paid by income earners such as freelancers and employees. This tax is withheld by employers from employee pay checks for forwarding to tax agencies. Existing retirees are paid by the funds paid into the trust fund by current workers instead of to individual accounts. Survivorship benefits are also a part of the Social Security benefit programs supported by the Social Security tax.

All types of income are used in the assessment of the Social Security tax rate such as bonuses, salaries, and wages. 12.4% was the Social Security tax rate in 2017 with half the tax paid by the employee and the other half paid by an employer. 6.2% each. The tax rate has a wage cap to limit the amount of Social Security tax that is payable. For 2017. Any amount of income earned above $127,000 is Social Security tax-free. The Social Security tax works in a regressive way making higher income earners to pay a lesser portion of their income in Social Security tax than lower income earners.

Are you are self-employed and wondering if there is anything for you here? In this case, the tax is still to be taken from your earnings. The Internal Revenue Service (IRS) requires a self-employed individual to pay the full 12.4% as he/she is considered as both an employee and employer.

Taxes on Social Security Benefits

Some of your Social Security benefits may accrue some federal taxes. This usually happens in the event of you receiving other substantial income to your benefits that are reported to your tax return.

Taxes on Social Security Benefit Payments

IRS rules state that you may only pay tax on 85% of your Social Security benefits. This depends on whether you;

  • Filed as an “individual” your federal tax return and have a combined income of
    • Between $25000 and $ 34,000.
    • More than $34,000.
  • Filed a joint return, and the combined income is,
    • Between $32,000 and $44,000
    • More than $44,000.
  • Are married and each of you files separate tax returns? Taxes will probably be paid on your benefits.

In order to find out how much of your benefits are subject to tax, you require to use your Social Security Benefit Statement. You will receive this statement every January showing all the amounts you received in benefits the previous year.

Losing your statement should not cause any worry because a replacement can be received instantly when you use your Social Security online account. This account also shows other relevant information regarding your Social Security status. Click on the "Replacement Documents" tab to download your form today.

Exemptions

Social Security tax does not have to be paid by every taxpayer. This is due to the exemptions in place. They are applicable to various taxpayers such as;

  • People opposed to receiving Social Security benefits as members of a religious group after death, when disabled or during retirement.
  • People who are neither legal residents nor citizens and non-resident aliens of the U.S.
  • People who are working for foreign governments in the United States as non-resident aliens.
  • People employed in the school they are enrolled in as students and continued enrolment is a contingency for employment.

The IRS website offers more insight into the interaction of taxes with Social Security benefits.