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Photo: 401kcalculator.org via Flickr The Social Security tax rate in the United States is currently 12.4%. However, you only pay half of this amount, or 6.2%, out of your paycheck -- the other half is paid by your employer. And, Social Security taxes are only applied to the first $118,500 in wages for the 2015 tax year, which can make the effective Social Security tax rate less for higher-income individuals. Examples Or, consider a higher-income individual who's salary is $250,000. Because this is over the wage cap, only the first $118,500 of this person's earnings is subject to the 6.2% tax. So, $7,347 of this worker's income is paid as Social Security tax, making the effective Social Security tax rate just 2.9%. Self-employed individuals There is some good news. The employer's portion of both taxes is deductible on your Federal income tax return, which can help to offset the sting of paying both parts of the Social Security and Medicare taxes. Consider an example of a small business owner with $100,000 in calculated self-employment income this year. Since this is under the wage cap, the 12.4% Social Security tax rate is applied, and $12,400 in Social Security tax is due. Half of this amount, or $6,200, plus another $1,450 in Medicare taxes can be deducted when calculating the adjusted gross income. A key fact to remember This article is part of The Motley Fool's Knowledge Center, which was created based on the collected wisdom of a fantastic community of investors. We'd love to hear your questions, thoughts, and opinions on the Knowledge Center in general or this page in particular. Your input will help us help the world invest, better! Email us at [email protected]. Thanks -- and Fool on! We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Social Security taxes in 2022 are 6.2 percent of gross wages up to $147,000. (Thus, the most an individual employee can pay this year is $9,114.) Most workers pay their share through FICA (Federal Insurance Contributions Act) taxes withheld from their paychecks. The contributions are matched by their employers. People who are self-employed cover both shares — that is, 12.4 percent of their net earnings — in the form of SECA (Self-Employment Contributions Act) taxes, paid through federal tax returns. Their higher burden is partially offset by a law that allows them to take half of what they pay in Social Security taxes as an income tax deduction. Keep in mindAnother 1.45 percent of your gross wages helps fund Medicare. There’s no income maximum there; $1.45 of every $100 you earn goes to Medicare. Again, your employer matches that, and again, people who work for themselves pay both shares, or 2.9 percent of their net income from self-employment. Updated December 23, 2021 Skip to content
Who Pays for Social Security?Workers and employers pay for Social Security. Workers pay 6.2 percent of their earnings up to a cap, which is $127,200 a year in 2017. (The cap on taxable earnings usually rises each year with average wages.) Employers pay a matching amount for a combined contribution of 12.4 percent of earnings. Self-employed persons pay both the employee and employer share for a total 12.4 percent. (Half of this contribution, the employer share, is a deductible business expense for income tax purposes.) Also, higher-income Social Security beneficiaries pay federal income taxes on their benefit income, and these taxes help pay for Social Security. During 2011 and 2012, the premiums that workers pay for Social Security protection were temporarily reduced from 6.2 percent to 4.2 percent. The lost revenue from this “payroll tax holiday”—$103 billion in 2011 and $114 billion in 2012—was made up from the government’s general fund. In 2015 the average worker made $48,099 a year, according to the Social Security Administration. This worker and his or her employer will each pay $2,982 this year. Approximately 6 percent of all workers will earn more than the $127,200 tax cap. Earnings above the cap now account for 18 percent of the aggregate pay of all workers who pay into Social Security. An additional tax on workers’ earnings pays for Medicare hospital insurance. This is a 1.45 percent levy, paid by workers and employers each on all wages, for a total tax of 2.9 percent. Self-employed persons pay 2.9 percent. Examples: Jon Smith makes $50,000 in 2017, and Jane Doe makes $120,000 for the year. Jon pays $3,100 for Social Security (6.2 percent of $50,000) and $725 for Medicare (1.45 percent of $50,000) for a total of $3,825 for the year. His employer pays the same amount. Jane pays $7,886 for Social Security (6.2 percent of the 2017 maximum wage base of $127,200) and $1,740 for Medicare (1.45 percent of $120,000 salary), for a total of $9,626 for 2017. Her employer pays the same. For more information, see:
How can we help you?Stay up-to-date on the latest research & policy updates.Subscribe to our newsletterWhat percentage of income is Social Security?Employers and employees each pay 6.2 percent of wages up to the taxable maximum of $147,000 (in 2022), while the self-employed pay 12.4 percent.
Is Social Security based on how much you put in?Social Security replaces a percentage of your pre-retirement income based on their lifetime earnings. The portion of your pre-retirement wages that Social Security replaces is based on your highest 35 years of earnings and varies depending on how much you earn and when you choose to start benefits.
What is the average Social Security a person receives?Table of Contents. Is it better to take Social Security at 62 or 67?You can start receiving your Social Security retirement benefits as early as age 62. However, you are entitled to full benefits when you reach your full retirement age. If you delay taking your benefits from your full retirement age up to age 70, your benefit amount will increase.
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What percentage of income goes to social security
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