Everything You Need to Know About Social Security TaxAugust 21, 2023 0 By Maria
A certain amount of your income is deducted to go the Social Security program. Learn more about these tax here.
Employed as well as self-employed individuals in the US must contribute to the Social Security program. This program aims to collect funds to pay retirement benefits to retired persons eligible for them. Therefore, when you see a social security tax added to your paychecks, don’t worry. There is so much you need to know about this tax. Continue reading, to know everything you need to know about Social Security tax.
How Social Security Tax Works?
Social Security program works by collecting mandatory contributions in form of taxes. From the contributions, eligible retired individuals get retired benefits. Therefore, when you have a job, you must pay a certain percent of your income to the program. The amount you pay or is deducted from your paycheck is referred to as social security tax.
Social Security Tax Rate Limit
There are set guidelines on how the Social Security tax works. If you are employed, you will have to contribute 6.2% of whatever you earned. However, there is a social security wage base used as a threshold on income. How much is the cap for social security? The cap has been raised to $137,700 for 2020. Anything you earned above this amount will not be subjected to the tax. The maximum tax can be withheld from a paycheck to go to social security program is $8,537 in 2020. However, this doesn’t exempt you from 1.45% Medicare Tax.
This means for high income earners, they will have to pay more tax bill at the end of the tax year. However, the most important thing is to file your returns on time, and take advantage of all available tax deductions and tax credits. When you take advantage of the deductions and credits you qualify for, you will realize a reduction in your tax bill, and in some situations, you can get a tax refund.
Take Advantage of Online Tax Filing to Reduce Your Huge Tax Bill
With all these taxes, you need to do something to lower your tax bill. If you are self-employed, you will need to deduct half of the social security tax you contributed because self-employed individuals pay double. However, you need to take advantage of all deductions and credits you qualify for by filing your taxes online using TurboTax or H&R Block.
Filing taxes online is straightforward and fast. You don’t have to be a tax professional to use TurboTax or H&R Block. You just need to enter essential information, and answer several important questions, and the tax filing software will do the rest for you. When you use online tax filing method expect no errors in your tax returns, and you will prepare and submit your tax returns on time.
Understanding Social security tax is a good thing. You now know what is the social security tax limit, among other things about the tax. In addition to that, you now know the best way to file your taxes – online tax filing using TurboTax or H&R Block. Therefore, use the information to get ready for the coming tax season.