Social Security taxes (SST) were initially intended to provide a source of income for elderly citizens. Over time, this federally managed program has expanded to also provide a source of income to qualifying individuals with disabilities and for minor children of deceased taxpayers. For employees, the tax is a payroll deduction automatically calculated and deducted from their gross taxable income, bonuses and tangible benefits. Employers pay a matching amount of SST for each employee. The amount of SST that someone must pay depends on whether that person is an employee, an employer or a self employed individual.
<strong>Employees and Employers</strong>
The current SST is based on a rate of 12.4 percent, www.ssa.gov . This is divided evenly at 6.2 percent for both employees and employers. There is a cap on how much income can be subject to the SST. The limit is tied to the national average wage index and can vary from year-to-year. Currently, the income SST limit is capped at $117,000. The math formula to arrive at the amount to be paid is: Earned Income Total x Social Security Tax Percentage = Tax to be Paid. As an example; the formula for someone earning the maximum taxable income would be: $117,000 x .062 = $7,254 for both the employee and the employer. The combined taxes paid would be 12.4 percent for a total of $14,508.
Self employed individuals are required to pay the full SST rate of 12.4 percent on all earned income up to the maximum limit of $117,000. The math formula to calculate the amount of tax to be paid by a self employed individual would be Earned Income Total x Social Security Tax Percentage = Tax to be Paid. As an example; the formula for someone earning a taxable income of $100,000 would be: $100,000 x .124 = $12,400.
Individuals who worked more than one job will see the SST deducted from all of the paychecks. Employers cannot grant employees credit for SST paid at another job location. Anyone who paid more than the total SST required can report the amount of the overpayment on either an IRS Form 1040 or IRS Form 1040A, www.irs.gov .
If an employer erroneously deducts more SST than required, the employee can ask the employer for a refund of the excess payment. If that is not possible, the employee can request a refund from the Federal Government using IRS Form 843.