is Social Security a payroll tax or an income tax ?
Reported for forum change.
General Questions, I think.
Mandatory loan? Since you get it back, it’s not really a tax…
It’s both. It is an income tax which is required to be paid as part of the employee payroll process. The current rate is 6.2% for the first $113,000 of income. Half of that is deducted from the employee’s paycheck. The other half is paid in aggregate by the employer.
s/6.2/12.4/
I’m curious what OP’s real question is. “income tax” and “payroll tax” are defined arbitrarily, and Soc Sec taxes are included in the latter. So what?
Generally speaking, a “payroll tax” is levied on an employer, on the amount of wages he pays, whereas an “income tax” is levied on the worker, on the amount of income he receives. Social security is levied on both, obviously, but it has certain characteristics which make it possible to argue that it’s not a tax or, at any rate, that calling it a tax gives an incomplete account of what it is and what it does.
That’s not true for some people. My wife and her employer paid social security, but she’ll never get it back, because she will never have worked 10 years in the U.S.
There is not a legal definition but in common parlance it is a payroll tax. If you ever read about payroll taxes in the news, they are talking about Social Security and Medicare. This is because they are paid directly by your employer[sup]1[/sup] through withholdings from your paycheck, based only on the amount of your check. In most cases[sup]2[/sup] the exact amount due for that year is withheld and you never have to file any paperwork related to it.
With income tax, there are withholdings too but you must file a 1040 and reconcile with Uncle Sam after the year is over–sometimes you pay more, sometimes you get some back. There are exemptions, deductions, credits, and a zillion things that affect how much income tax you pay. Many people pay none.
Maybe you don’t mean this literally, but you don’t get it back. Social Security is a form of socialism where the younger working population pays tax and that tax is redistributed to the older retired population as a safety net. When you become eligible, you are not getting your own money back. You are getting the money being put in by those young workers. If you die before you are eligible to receive it, or never become eligible, you don’t get a dime back. Even if you receive it there is no match-up for you to receive the same amount you paid in. It’s not a retirement account.
- If you are not self-employed
- Exceptions are if you had two employers in the same year and too much was withheld; then you claim the refund as part of your income tax filing.
Defining it as a “socialist - young pay the old” retirement program is too limiting since it ignores the survivor and disability aspects of its true definition of “social insurance”.
As insurance, sometimes it has a payout, sometimes it does not.
It appears your comment is attaching a negative connotation that socialism is bad in America, per se, when there are numerous examples where a “socialist” approach is well accepted in American society in many government programs. But all of this is more suited for a GD thread.
Very good point. I will scope back my point to be simply that you don’t contribute to a pool then take your money back out later, not a “mandatory loan.”
I was not attempting to cast it as good or bad but being descriptive. I don’t have an agenda. If it does not properly fit the definition then I will be more than happy to retract my description.
The Social Security tax, at least the employee portion, is an income tax, but when people talk about the federal income tax they are not talking about it.
It is perhaps a mandatory insurance premium.
Socialism is just an economic system where the government owns businesses. It really has nothing to do with welfare programs or wealth redistribution.
This is not correct. The current rate is 12.4%, split between employee and employer.
What happens to Employee, Employer A, and Employer B in the following scenarios?
Scenario 1: Employee works concurrently for Employers A and B, earning $113,000 annually from each. How much does each person pay (% wise) per paycheck, and how are refunds handled?
Scenario 2: Employee works six months for Employee A, earning $113,000 in that time. Employee then goes to work for Employer B. Will Employer B deduct FICA from the paycheck? If so, will both Employee and Employer B have to file for a refund for the respective amounts deducted?
Nobody ever gets “the same money back” from a loan. If I take out a small business loan, for instance, the money the bank is loaning me is going to buy real estate, equipment, etc. that allows me to make or sell something, and the money I pay back to the bank is coming from the things I sell. And the bank is then using that money I pay back to them to give loans to others. So effectively a bank loan is just a way of transferring money from established businesses to new businesses.
Unless it’s been changed recently the answer is the same in both cases. Both employers will withhold from the employee the full amount and pay the full employer amount. The employee will get a refund assuming he fills out his income tax correctly. The employers (including a self-employed person if employer B = employee) will not.
Actually, if the person is self employed, s/he might not be required to withhold the employee portion and get a refund. I never did as a part-time self employee, but that could be because it was too small to matter.
For the OPs question, I’d call SS a payroll tax. It is only applied to earned income such as wages and self-employment and not to any other type of income. However, I’m not sure if it’s relevant what we call it.
It is a tax regardless of whatever benefit individuals might get out of it later. (After all, you can make that argument about all taxes - everything the government collects, and then some, is paid out in ways intended to benefit people.)
In both scenarios, each employer withholds 6.2% on the entire 113k. Each employer also pays to the federal government 6.2% of the 113k - so there’s tax paid and withheld on a total of 226k.
On the employee’s federal income tax return, it will be recognized that he “overpaid” SS by having wages paid on two different paychecks and the employee gets the excess back, applied as part of his federal income tax withholding. (it has its own line on the 1040)
While the employee was reimbursed for the duplication, the employers are not; they’ll still have paid in twice as much as if the employee worked for only one employer.
Collectively, the OASDI (Old Age Survivor Disability Insurance) and Medicare portions make up what is known as Social Security. In my experience as an employer we’ve referred to it as a payroll tax. This is different than an income tax withholding. While the 6.2 OASDI portion is limited, the Medicare portion of 1.45% for both the employee and employer is unlimited and has no cap.