What Is the Social Security Tax?

Social Security Tax is for employers and employees to finance the Social Security Program in the United States. The Social Security Program is a must-be that supports various layers of people inside the country. The collection of this tax occurs in the form of a payroll tax mandated by FICA or a self-employment tax directed by SECA. This tax pays for survivorship, disability, and retirement, which benefit many individuals in the US. The Social Security Tax rate is 12.4% in 2022, which employers and employees pay and is divided evenly between them. The self-employed pay on both portions by themselves but just 92.35% of the net earnings. Some particular groups, like members of certain religious groups, are exempt from paying this tax. This article will provide further clarification regarding Social Security Tax; keep reading to get more information about the topic.

The Mechanism of Social Security Tax

The Social Security Tax applies to the earnings of employees and self-employed individuals. The tax is generally withheld from employees’ paychecks and directly paid to the government. The collected funds are for existing older people in a pay-as-you-go system. This tax will also support people eligible for survivorship benefits, such as surviving spouses or dependent kids.

As we mentioned, this tax rate is 12.4%, employers will pay 6.2% of it, and the employees will pay the other half. The Social Security Tax applies to all kinds of earnings that an employee receives, like salaries, wages, and different bonuses. Remember that this tax rate is applied to the annual income limit of up to $147000 in 2022. This limit will increase to $160200 in 2023 due to the inflation effects, and as we know, the inflation surge is significant these days.

Self-employed Individuals Also Pay Social Security Tax

Self-employed people must also pay this tax, and it is unavoidable. The IRS will consider self-employed persons both employer and employee, so these individuals must pay the total 12.4% rate. It applies to all net earnings and includes Social Security and Medicare taxes. So, the self-employment tax is 15.3% for 2022, comprising the 12.4% Social Security Tax plus 2.9% Medicare tax, a considerable amount.

Some Available Exemptions

Social Security Tax is not for all individuals, and some special exemptions are available that we point out below:

  • Some religious groups are opposed to Social Security benefits due to their specific beliefs. Members of these religious groups are exempt from this type of tax.
  • Temporary individuals who are in the country as students and they are neither citizens nor residents of the US are also exempt from Social Security Tax.
  • There are nonresidents who work for another country on US soil; these aliens are also exempt from this type of tax.
  • Some students enroll at a school and get employed there, but the employment is contingent upon the extension of that enrollment. However, Social Security Tax is not available for these individuals.
Social Security Tax

Can I Avoid Paying Social Security Tax?

If you are the type of person that makes money in retirement, you should pay Social Security Tax on the benefits. For example, if you make an amount between $25000 and $34000 as a person, not a company, you need to pay around 50% in taxes on those benefits. If you make more than $34000, you should pay up to %85. You can do various things to minimize this tax; for instance, you can decrease taking out money from retirement plans or give away your required minimum distribution.

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How Will You Pay Social Security Tax?

Social Security Taxes can be deposited on a semiweekly or monthly basis, and it all depends on you. The schedule is focused on your prior reports, which you can learn further about in Publication 15. So, the deposit is related to the lookback period you reported on Form 941 and Form 944. The lookback period is constantly changing, so ensure to confirm your lookback period before the beginning of the new year. If you want to deposit your payroll taxes, it is obligatory to utilize EFTPS. The late deposit will lead to trouble, and you might be subject to a fee that is troublesome in most cases and tarnish your reputation.

December 31 Is the Due Date for the Postponed Social Security Tax

According to the IRS, employers and self-employed people who have deferred their 2020 liability must pay the second installment of the postponed amount on December 31, 2022. Employers could put off their Social Security Tax liability in 2020 due to the COVID relief, which was a significant 6.2% of the wages. Self-employed people could also do something similar and postpone the same percentage. The first installment of that deferral was on December 31, 2021, and the other half is this year on December 31. The IRS reminded these individuals about the issue this fall and noted that affected individuals must pay on the due date to avoid penalties and later headaches. These individuals have several options to pay the deferral, and there’s no difference in your choice, but it must be made separately from the other options.

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