Social security tax is levied on employees and employers both. The money that is collected from social security tax is placed in a fund that disbursed advantages amongst disabled as well as retired people of the society. Being the largest generator of public money, it is used to make sure that disabled people or retired people have a source of income so they can live a happy life. For many individuals, social security is the only source of income. But, there are recipients who receive money from other sources. Social security benefits can be taxable for people based on marital status as well as other sources of income.
The social security tax rate is 6.2 percent of employee compensation for both employers and employees. Some of the highlights about social security tax are:
- It is regressive, which means that it is applied uniformly irrespective of income as opposed to a progressive tax that is based on income.
- Social security tax rate is the full 12.4% for those who are self employed.
- There is also a limit on the amount of yearly wages or earned income subject to taxation in 2021, the maximum amount of income subject to this tax us $124,800.
For several years, the number of employees paying into the system has increased more than the number of retirees drawing from the system. Thus, social security tax has created excess amounts that have been accumulated in special US government securities to help offset future advantages. The social security program is funded by imposing a tax on social security benefits received by people who have additional sources of income that exceed thresholds that are based on marital status. So. People with additional sources of income receive benefits and are made to provide some of it in return.
If you structure your income sources wisely, then it can reduce or even eliminate the tax on social security benefits. The first step is calculate how much of your social security is taxable then determine if you can restructure taxable assets into tax benefits accounts. Besides, it is also vital to understand that any changes made to the way retirement income assets are structured will affect the future tax calculations. It is so vital that you use the social security tax calculation to your benefits and boost your income in any way you can in these times of economic stability. Furthermore, it is a great benefit to read the latest information and tips on how to minimize the tax on social security. If you are a US citizen but living abroad, then you can go for American expat tax services, search online and pick the best one that fits your needs. There may be a great solution to eliminate the tax in social security and maximize the social security benefits.