Social Security Tax: Everything You Need to Know
If you’re working and earning an income, you should be aware of the Social Security tax. The Social Security tax is a payroll tax that provides benefits for retired or disabled Americans, as well as their families and survivors. In this post, we’ll cover everything you need to know about the Social Security tax.
What is the Social Security Tax?
The Social Security tax, also known as the FICA (Federal Insurance Contributions Act) tax, is a payroll tax that funds two programs: Social Security and Medicare. It’s designed to provide financial support for retired or disabled individuals, as well as their families and survivors.
Who Pays the Social Security Tax?
Both employees and employers are responsible for paying the Social Security tax. As an employee, your employer will withhold 6.2% of your gross pay up to a certain limit ($142,800 in 2021), while also contributing an additional 6.2%. Additionally, there’s a Medicare portion of this payroll tax which entails another 1.45% withheld from your gross pay without any limit along with another matching contribution by your employer.
For self-employed individuals who run their own businesses or work independently under contract agreements where they receive payments directly without being classified under regular employment status can expect to pay both portions themselves; meaning they have to bear both parts of these taxes which total up to 15.3%.
Why Do We Pay The Social Security Tax?
We all would love not having to pay taxes but when it comes down it- someone has got to fund government-run programs such as social security benefit plans that help keep our elderly population secure financially during retirement years or disability due situations that render them unable to work.
How Much Is The Social Security Benefit?
Your final benefit amount depends on how much money was contributed throughout your lifetime into social security through paying FICA taxes over time – generally speaking though if someone were to retire at full retirement age and had the average lifetime earnings if they were born in 1960 or later, their monthly benefit amount would be around $3,148. However, it’s important to note that this amount can vary from person to person based on factors such as work history, age of retirement etc.
When Can You Start Receiving Social Security Benefits?
You can start receiving Social Security benefits once you reach the minimum age of 62 but keep in mind that earlier you elect to receive your benefit payments before reaching full retirement age (FRA), the less your monthly payment will be. Your FRA is between ages 66 and 67 depending on when you were born.
Can You Work And Receive Social Security Benefits At The Same Time?
Yes, you can work while collecting social security benefits but there are certain limits one must adhere to. For instance, if someone hasn’t reached their FRA yet and continues working while receiving social security benefits then there’s a limit called an “earnings test” which sets the threshold for maximum income someone is allowed to earn without having any deductions made from their monthly benefit payment- in short; if the income exceeds a certain limit (different every year), then some portion of these payments may get reduced or withheld altogether until they eventually reach their full retirement age.
What Happens If Someone Passes Away Before Collecting Their Benefit Payments?
If someone passes away before being able to collect any of their social security benefit payments then close family members such as spouses or children may be entitled to survivor’s benefits which entail amounts equivalent or proportionate of what was previously claimed by them during life-time contributions towards these programs.
Conclusion:
In conclusion, knowing about Social Security tax is essential for anyone who’s earning an income. It’s important to understand how much money gets taken out of your paycheck each month so that you’re not caught off guard when it comes time for taxes at year-end. Additionally, it’s essential to know how social security benefits work so that you can plan for your financial future accordingly with a full understanding of the program and what comes along with it.