The amount of money from your wage that your employer deducts and subjects to the FICA tax is known as the Social Security Wages. At the time of your retirement, Social Security Administration will use the statements of these wages to determine the benefit calculations.
Even in cases where an employee is not qualified for social security benefits, the employer still needs to deduct the wages and fill up the W-2 form.
The following categories are included in the Social Security Wages:
The Old Age, Survivors, and Disability Insurance (OASDI) program of Social Security places a limitation on the yearly wages that are subject to taxation.
Both the earning and yearly limitation is taken into account while calculating benefits. Since the national average pay varies yearly, this also affects the limitation, which is adjusted accordingly. The contribution and benefit basis is capped yearly, and this sum is called the "taxable maximum."
This baseline is $160,200 for salary in 2023. The statutory OASDI tax rate for earnings paid in 2023 remains 6.2 percent for employers and employees.
Therefore, in 2023, a worker whose annual salary is at least $160,200 would pay $9,932.40 into the OASDI program in addition to the same amount paid by the employer. In 2023, the OASDI tax rate on self-employment income will be 12.4%.
No. Your total income will determine the amount of your Social Security benefits that are subject to taxation. Your total income is equal to half of your Social Security payments, your adjusted gross income, and any interest you receive that is not subject to taxation.
Up to half of your benefits may be subject to income tax if your joint income is between $25,000 and $34,000 and you file your taxes as a single individual. Up to 85% of your benefits could be subject to taxes if your joint income is over $34,000. Your whole Social Security check will be tax-free if your annual income is less than $25,000.
If you and your spouse file a joint tax return and your joint income is between $32,000 and $44,000, you may owe income tax on as much as half of your benefits.
Up to 85% of your benefits may be subject to taxation if your joint income is $44,000 or higher. You won't owe any taxes on your Social Security check as long as your total income is under $32,000.
The following factors are excluded from the social security wages.
Retirees and people who cannot work because of illness or injury are eligible to receive Social Security payments. If a person can no longer work, Social Security may be their sole reliable source of income, especially if they have a limited work history or low wages.
You can calculate the Social security wages of an employee by following the steps below:
If an employee earns an hourly wage is $3000, the commission is $500, and the tip is $15.
So, the Social Security wage will be ($3000+$500+$15)-$15= $3500.
A maximum amount of yearly earnings or earned income can be taxed, known as a tax cap; in 2022, this threshold is set at $147,000, and in 2023, it rises to $160,200.