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Tuesday, May 31, 2011

Facts about Social Security wage taxes

~ FDR signing the Social Security Act on August 14, 1935

Here's some facts...

-- As an employee, your wages are hit with the 12.4% Social Security tax up to the annual wage ceiling ($106,800). Half the Soc. Sec. tax bill (equal to 6.2%) is withheld from your paychecks. The other half is paid by your employer.

    --> For those who made that much or more last year, the Social Security tax hit on your 2010 wages was $13,243 (12.4% x $106,800). Half came out of your paycheck ($6,621). Your employer paid the other half.

    -->   Example:  If your annual wages was $45,000, 6.2% or $2,790 would be taken out to cover Soc. Sec. taxes and your employer would match another 6.2%

-- For 2011 only, the tax hit is less, a  2 percentage-point reduction in the Social Security tax withholding rate on wages -- from the normal 6.2% to 4.2% (your employer's 6.2% rate is unchanged).

    -->  For 2012 and beyond, however, tax withholding on wages jump back to 6.2%

-- Those self-employed must pay the entire 12.4% tax rate out of their own pockets, based on the amount of their net self-employment income.

     -->  This is a big reason why companies often prefer to treat workers as self-employed independent contractors rather than employees. Social Security tax is not owed by companies on amounts paid to independent contractors.

     -->  The self-employment income ceiling is $106,800 (same as for employees). So if your 2010 self-employment income was $106,800 or more, you paid the Social Security tax maximum of $13,243.

~ Some people think the government has set up an account with their name on it to hold the money to pay for their future Social Security benefits...  Nope.  There are no individual accounts. Actually, in years past when the Social Security system would run a surplus (which it did in most years until recently), the federal government would suck out the excess cash and issue the system an IOU.

This was done by Reagan, Bush 41, Clinton and Bush 43... when there was a need for money for some pet project, and the President didn't want to generate the revenue by raising taxes, he'd simply take from the Soc. Sec. fund with an IOU to pay it back later. (Really its no different than putting $ in a cookie jar for your child's college fund and along the way, taking some out so you can buy a HDTV but with a promise to yourself you'll put the $ back later... which of course you don't.)

This is why even though Soc. Sec. taxes increased under Reagan, the program is threatened with eventual insolvency.  The only way those IOUs will ever be paid is through future taxes. Meanwhile, the system is now projected to run out of money (including those nebulous IOUs) in 2036 unless taxes are raised or benefits are cut.

So it is fair and accurate to say that 4 Presidents between 1981-2009, representing both political parties, did a very good job F-ing up Social Security when based on all the additional revenue since 1981, it should have been Strong for a long time to come.

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