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Social Security Tax Law

Many individuals that are paying or should be paying Social Security tax are often unknowledgeable about Social Security tax laws. Uncertainties of what Social Security tax is or what is subject to Social Security tax often leads to questions like the ones answered below by the Experts.

What is Social Security tax?

The Social Security tax is a payroll tax that benefits old-age, survivors, and disability insurance (OASDI). The Social Security tax is one of the components that make up the FICA tax. The percentage for the Social Security tax is 12.4% of taxable wages. Half of this amount is paid by the employer and the other half is paid by the employee. If an individual is self-employed then they will be subject to the full Social Security tax percentage.

Is there a time/age when someone would not have to pay tax on Social Security benefits even if they continue working?

When individuals begin to receive Social Security (SS) benefits they are only allowed to have a predetermined amount of other income before SS benefits become taxable. Individuals that do go over this limit are only subject up to 85% of the SS benefits to become taxable and only subject to the income tax. It is not subject to Social Security and Medicare tax. There is no age or time that this taxation stops even if a person still makes more than the allotted income amount. If however the individual would fall below the allowed income level then SS benefit will not be subject to income tax.

If an employer did not withhold any Social Security tax during the ten years of part time employment but withholds SS tax when a fulltime employee, who has to reimburse the Social Security?

Your employer is required to collect Social Security and Medicare taxes unless you were exempt from these taxes. Often times the Social Security Administration routinely verifies W-2 information from the IRS with the information that they have on file. This is considered a compliance check for employers. Employers are also required to pay these taxes based on the wages of their employees. If your employer did make a mistake and you were not exempt from these taxes, then they can correct the mistake by filing an amended W-2 for every year that it was wrong and are obligated to also send this to the SSA. Social Security would be reimbursed by the payment being due. Often fines and penalties are also added on.

If a construction company (1120-S) pays its owner a bonus at the end of each yearly quarter and does not withhold any taxes not even Social Security tax. Is a bonus exempt from the Social Security Tax?

Typically a bonus is a part of income that should run its course through payroll and taxed. However if this bonus is payment to the owner as a distribution of profit and not as a compensation for services then it is not ran through payroll. Instead the payment (bonus) is recorded as distribution and would not be subject to the Social Security tax.

Does an individual have to pay the social security tax on Supplemental Executive Retirement Plan (SERP) payments?

Supplemental Executive Retirement Plans (SERP) is an agreement between a company and the employee that stipulates an amount they will provide for the employee at retirement, death, become disabled or the employee is terminated. If the benefit payment is made after the employee is terminated then the payment is not subject to FICA taxes. A FICA tax has two components: Social Security tax and Medicare tax. If however the SERP payment is supplemental to wages then it is considered a wage and will be subject to Social Security and Medicare tax via FICA taxes.

Gathering good information and having a clear understanding on Social Security tax laws often helps when faced with circumstances that involve Social Security tax questions. Experts can help answer what the Social Security tax is or what portion of your income is subject to the Social Security tax. Get the answers fast and often more affordably by asking an Expert.

Ask a Tax Professional

Wallstreet Esq.
Wallstreet Esq., Tax Attorney
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Tax Professionals are online & ready to help you now

Wallstreet Esq.
Tax Attorney
Satisfied Customers: 570
10 years experience
Wendy Reed
Enrolled Agent
Satisfied Customers: 3052
15+ years tax preparation and tax advice.
Mark D
Enrolled Agent
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MBA, EA, Specializing in Business and Individual Tax Returns and Issues

Recent Social Security Tax Questions

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    Tax question. my husband and I are on site managers for a trailer park and storage unit and they have him fill out a 1099 and pay him 700.00 a month. we also have to pay 700.00 rent although it is mandatory we have to live here as the office is attached to the house. Question, they could give him rent for wages without paying taxes. Also, as he was misclassified and we paid 15.3% taxes in 2012 and 2013. Could we go back and redo the taxes or would that penialize the owners?
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