social security and taxes

[DisneyBill]

Perhaps spending some quality time with https://turbotax.intuit.com/tax-tools/calculators/taxcaster/ would be a good starting point for you to clarify much of this.

 

[supersnoop]

Okay, lets go over this.
Look at a your W-2.
Box 1 is Wages, Tips and Other Compensation and interestingly it is 7.65% less than Box 3.
Box 3 is Social Security Wages.
Social security withholding is 6.2% and Medicare is 1.45%. 6.2 + 1.45= 7.65%

Okay, I may be slow, but how is that NOT pre-tax income?
Thanks

Something that's withheld "pre-tax" means that the amount withheld is deducted from your AGI before taxes are computed. Social Security taxes are computed on your total income before those are withheld. So, when the government takes that 7.65% out of your paycheck, you're still paying taxes on it as income.

 

[tvguy]

Something that's withheld "pre-tax" means that the amount withheld is deducted from your AGI before taxes are computed. Social Security taxes are computed on your total income before those are withheld. So, when the government takes that 7.65% out of your paycheck, you're still paying taxes on it as income.

Where I am confused is my Income Taxes appears to have been deducted from the pay amount AFTER Social Security was withheld, in that case it would be pre-tax, not from the larger Social security wages.

 

[J.Casto79]

Where I am confused is my Income Taxes appears to have been deducted from the pay amount AFTER Social Security was withheld, in that case it would be pre-tax, not from the larger Social security wages.

Social Security taxes are calculated on the gross amount of your wages.

The only subtractions that you would take before calculating income tax withholding are certain items such as your portion of insurance premiums and a few others.

An example if you had $1,000 in earnings.

Gross Income : $1,000
SS : $62.00
Medicare : $14.50

Deductions from Income
Health Insurance : $200

Taxable Income $800, lets assume 10% rate
Income Tax $80

So on $1,000 gross income you'd have $80 in income tax and $76.50 in social security/medicare taxes.

 

[Claire&TheBoys]

J.Casto79 has it exactly right. I work for a CPA and do a lot of payroll manually (because we still have clients that hand-write checks and do not use accounting software).

For an employee with no 401(k) or IRA, no company health insurance or pre-tax savings accounts (dependent care, health savings), his/her W-2 looks like this:
Box 1 (gross income), Box 3 (SS income) and Box 5 (Medicare income) are all equal (presuming he/she doesn't hit the SS taxable limit).
Box 2 is the income tax withheld, Box 4 is 6.2% of Box 3, Box 6 is 1.45% of Box 5.

401(k) deductions are not taxable to income tax (FIT), but are taxable to SS/MC.
Company-sponsored health insurance premiums are not taxable to FIT, SS OR MC. You don't pay any taxes on the money you spend for company health insurance.

So it's pretty hard to look at a paycheck and be able to decipher what tax rate you're paying on what portion of your income. I can figure it out because I do it all the time.

Back to the original question:
Yes, until you are over a certain age (67? 70?), a portion of your SS income will be taxable if your other income is over a certain amount.

 

[DVCcurious]

To answer the original question: Social Security income is only taxed on the wealthy.

You have to have a non-social security income of greater than $32,000 (for a couple filing jointly) for your social security to be taxed.

In order to generate $32,000 per year you would need a nest egg of about $1 million. So, yes, people who have $32,000 per year in non social security income at retirement are wealthy.

Actually, your social security withholding comes out of your paycheck pre-tax.

Ummm....nope.

Happens when you die too. You paid taxes on your earnings when you made them and if you leave money to your children, it's taxed again. You are punished for saving and looking toward the future.

wrong.

That's a laugh. The government borrows from SS. They do this to hide the true deficit. It is said the true deficit astronomical.

Wow, 3 for 3. Disboards is just a fountain of mis-information!

1) Social Security is taken out of your check based on your gross income (401k contributions don't reduce your SS tax, for example). But SS tax is not deducted from your gross income to calculate taxable income. So it's not "pre tax" in the sense that 401k contributions are "pre tax".

2) A person gets a $5.5 million exemption from estate tax ($11 million for couples). If your estate exceeds $11 million as a couple then what you wrote would be true. But...let's be real here, how many of us have $11 million+ estates? (answer: 0.2% of the population)

3) This is wrong on two counts. Technically the government wasn't borrowing from social security; instead, legally, social security was "investing" its excess cash. Back in the 1980's the baby boomers knew their retirement was coming. So they made changes to social security: increasing the retirement age, increasing the tax rate, and saying that excess taxes had to be invested in US government bonds. Now, had social security's excess been invested in the S&P 500 then the US government would have had to issue more debt and borrow from somebody else to cover their shortfalls.

Your statement is also incorrect because Social Security has not had a surplus since the Great Recession. So currently Social Security is "redeeming" its bonds and the general fund is paying back the social security fund.

Furthermore it wasn't done to "hide" the deficit it was done because "the people" don't want their social security invested in the stock market (remember when Bush tried that?) So the only option was investing in government bonds. Also, the true deficit isn't astronomical. The "true" deficit is just simply... expenses - tax receipts. Which is like $600 billion. $600 billion is not astronomical.

While we're on the subject of the deficit it's important to note that every one of Obama's deficits have exceeds Bush's largest deficit. Obama likes to claim he cut the deficit he inherited in half. This is a bold-faced lie. Obama attributes the 2008-2009 year as "Bush's deficit he inherited". The problem with that is that year includes the $900 billion stimulus that was signed by Obama. So Bush's last "true" deficit in 2007-2008 was about $300 billion. But after Obama signed the stimulus he said "Bush's" deficit increased to $1.3 trillion. So that's why he claimed he halved it to today's $600 billion. The truth, however, is that the deficit today ($600 billion) is twice what Bush's last deficit was ($300 billion in 2007-2008).

When you say "the true deficit is astronomical" you may be referring to the National Debt. It is about $19 trillion currently, which is not astronomical. But if the government recognized debts the way a corporation has to then you'd have to include the present value of future Social Security, Medicare, and Obamacare payments as current debts. And then the "true" national debt would approach $80 trillion (roughly $250,000 for each American)

 

[supersnoop]

wrong

Not entirely wrong. Just wrong in 99.5% of estates.

 

[disneychrista]

Okay, lets go over this.
Look at a your W-2.
Box 1 is Wages, Tips and Other Compensation and interestingly it is 7.65% less than Box 3.
Box 3 is Social Security Wages.
Social security withholding is 6.2% and Medicare is 1.45%. 6.2 + 1.45= 7.65%

My box 1, 3 & 5 have always been exactly the same.