Editing Social Security (United States) (section)

== Taxation ==
[[File:Payroll tax history.jpg|thumb|upright=2.8|Payroll tax rates history]]

=== Tax on wages and self-employment income ===
Benefits are funded by taxes imposed on wages of employees and self-employed persons. As explained below, in the case of employment, the employer and employee are each responsible for one half of the Social Security tax associated with the employee, with the employee's half being withheld from the employee's pay check. In the case of self-employed persons (i.e., independent contractors), the self-employed person is responsible for the entire amount of Social Security tax associated with the self-employed person.

The portion of taxes collected from the employee for Social Security are referred to as "trust fund taxes" and the employer is required to remit them to the government. These taxes take priority over everything, and represent the only debts of a corporation or LLC that can impose personal liability upon its officers or managers. A sole proprietor and officers of a corporation and managers of an LLC can be held personally liable for non-payment of the income tax and social security taxes whether or not actually collected from the employee.<ref>IRC § 6672 provides "Any person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to collect such tax, or truthfully account for and pay over such tax, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall in addition to other penalties provided by law, be liable to a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over."</ref>

The ''[[Federal Insurance Contributions Act tax|Federal Insurance Contributions Act]]'' (FICA) (codified in the [[Internal Revenue Code]]) imposes a Social Security withholding tax equal to 6.20% of the gross wage amount, up to but not exceeding the ''[[SSWB|Social Security Wage Base]]'' ($97,500 for 2007; $102,000 for 2008; and $106,800 for 2009, 2010, and 2011). The same 6.20% tax is imposed on employers. For 2011 and 2012, the employee's contribution was temporarily reduced to 4.2%, while the employer's portion remained at 6.2%.<ref>{{cite web | url=https://www.irs.gov/pub/irs-pdf/p15.pdf | title=2011 Publication 15 | access-date=2011-09-11}}</ref><ref>{{cite web | url=https://www.irs.gov/uac/Payroll-Tax-Cut-Extended-to-the-End-of-2012;-Revised-Payroll-Tax-Form-Now-Available-to-Employers | title=Payroll Tax Cut Extended to the End of 2012; Revised Payroll Tax Form Now Available to Employers | date=2012-02-13 | access-date=2012-12-12}}</ref> In 2024, the [[Social Security Wage Base]] (the upper limit on earnings taxed) increased to $168,600. For each calendar year for which the worker is assessed the FICA contribution, the SSA credits those wages as that year's covered wages. The income cutoff is adjusted yearly for inflation and other factors.

A separate payroll tax of 1.45% of an employee's income is paid directly by the employer, and an additional 1.45% deducted from the employee's paycheck, yielding a total tax rate of 2.90%. There is no maximum limit on this portion of the tax. This portion of the tax is used to fund the [[Medicare (United States)|Medicare]] program, which is primarily responsible for providing health benefits to retirees and also pay benefits to those on disability.

The changes in Social Security tax rates over time can be accessed on the [[Social Security Administration|SSA]]<ref>{{cite web | url=http://www.ssa.gov/policy/docs/statcomps/supplement/2010/2a1-2a7.html#table2.a3 | title=Annual Statistical Supplement, 2010 – History of OASDI Coverage, Financing, and Insured Status (2.A1-2.A7) | publisher=Ssa.gov | access-date=2013-07-14}}</ref> website.

The combined tax rate of these two federal programs is 15.30% (7.65% paid by the employee and 7.65% paid by the employer). In 2011–2012 it temporarily dropped to 13.30% (5.65% paid by the employee and 7.65% paid by the employer).

For [[Self-employment|self-employed workers]] (who technically are not employees and are deemed not to be earning "wages" for federal tax purposes), the self-employment tax, imposed by the Self-Employment Contributions Act of 1954, codified as Chapter{{spaces}}2 of Subtitle A of the [[Internal Revenue Code]], {{usc|26|1401|1403}}, is 15.3% of "net earnings from self-employment."<ref>See {{usc|26|1402}}.</ref> In essence, a self-employed individual pays both the employee and employer share of the tax, although half of the self-employment tax (the "employer share") is deductible when calculating the individual's federal income tax.<ref>{{cite web | url=http://ssa-custhelp.ssa.gov/cgi-bin/ssa.cfg/php/enduser/std_adp.php?p_faqid=172 | archive-url=https://archive.today/20120715231032/http://ssa-custhelp.ssa.gov/cgi-bin/ssa.cfg/php/enduser/std_adp.php?p_faqid=172 | archive-date=2012-07-15 | title=I Am Self-Employed. How Do I Pay Social Security Tax? | publisher=[[Social Security Administration]] | access-date=April 28, 2007}}</ref><ref>{{cite web | url=https://www.irs.gov/businesses/small/article/0,,id=98846,00.html | title=Self-Employment Tax | publisher=[[Internal Revenue Service]] | access-date=April 28, 2007}}</ref>

If an employee has overpaid payroll taxes by having more than one job or switching jobs during the year, the excess taxes will be refunded when the employee files an annual [[Income tax in the United States|federal income tax return]]. Any excess taxes paid by employers, however, are not refundable to the employers.

By Congressional Budget Office (CBO) calculations, the lowest income quintile (0–20%) and second quintile (21–40%) of households in the U.S. pay an average income tax of −9.3% and −2.6% and Social Security taxes of 8.3% and 7.9% respectively. By CBO calculations the household incomes in the first quintile and second quintile have an average Total Federal Tax rate of 1.0% and 3.8% respectively.<ref name="CBO 43373 table 1">{{cite web | title=The Distribution of Household Income and Federal Taxes, 2008 and 2009, Supplemental Tables; Table 1 | date=July 10, 2012 | url=http://www.cbo.gov/publication/43373 | access-date=October 13, 2013}}</ref>

==== Wages not subject to tax ====
Workers are not required to pay Social Security taxes on wages from certain types of work:<ref>IRS Publications 15, 15-A.</ref>
* A student working part-time for a university, enrolled at least half-time at the same university, and their relationship with the university is primarily an educational one.<ref>{{cite web | url=https://www.irs.gov/pub/irs-drop/rp-05-11.pdf | title=Rev. Proc. 2005-11 | publisher=Internal Revenue Service | date=April 1, 2005 | page=5}}</ref>
* A student who is a household employee for a college club, fraternity, or sorority, and is enrolled and regularly attending classes at a university.<ref name= domestic>"[https://www.law.cornell.edu/cfr/text/26/31.3121%28b%29%282%29-1 26 CFR 31.3121(b)(2)-1]". via Legal Information Institute, Cornell University Law School. Retrieved December 23, 2018.</ref>
* A child under age 18 (or under age 21 for [[domestic service]]) who is employed by their parent.<ref>"[https://www.law.cornell.edu/cfr/text/26/31.3121%28b%29%283%29-1 26 CFR 31.3121(b)(3)-1]". via Legal Information Institute, Cornell University Law School. Retrieved December 23, 2018.</ref><ref name="p15-12">"[https://www.irs.gov/pub/irs-pdf/p15.pdf Publication 15: (Circular E), Employer's Tax Guide]". ''Internal Revenue Service''. 2017. pp. 12–13.</ref>
* A person who receives payments from a state or a local government for services performed to be relieved from unemployment.<ref name= 7F1>"[https://www.gpo.gov/fdsys/pkg/USCODE-2011-title26/html/USCODE-2011-title26-subtitleC-chap21-subchapC-sec3121.htm Internal Revenue Code Section 3121(b)(7)(F)(i)]". ''Internal Revenue Service''. Retrieved November 19, 2018.</ref>
* An incarcerated person who works for the state or local government that operates the prison in which the person is incarcerated.<ref name="7F2">"[https://www.gpo.gov/fdsys/pkg/USCODE-2011-title26/html/USCODE-2011-title26-subtitleC-chap21-subchapC-sec3121.htm Internal Revenue Code Section 3121(b)(7)(F)(ii)]". ''Internal Revenue Service''. Retrieved November 19, 2018.</ref><ref name="p963 pp. 3-22">"[https://www.irs.gov/pub/irs-tege/p963_1111.pdf Publication 963]". ''Internal Revenue Service''. November 2011. pp. 3–22.</ref><ref name="fslg-2006-01">{{cite magazine | last=Bowen | first=Denise Y. | date=January 2006 | title=Amounts Paid to Inmates | magazine=Federal, State and Local Governments (FSLG) Newsletter | publisher=Internal Revenue Service | pages=3–5}}</ref>
* A person at an institution who works for the state or local government that operates the institution.<ref name="7F2" /><ref name="p963 pp. 3-22" />
* An employee of a state or local government who was hired on a temporary basis in response to a specific unforeseen fire, storm, snow, earthquake, flood, or a similar emergency, and the employee is not intended to become a permanent employee.<ref name= 7F3>"[https://www.gpo.gov/fdsys/pkg/USCODE-2011-title26/html/USCODE-2011-title26-subtitleC-chap21-subchapC-sec3121.htm Internal Revenue Code Section 3121(b)(7)(F)(iii)]". ''Internal Revenue Service''. Retrieved November 19, 2018.</ref><ref name= p15-38>"[https://www.irs.gov/pub/irs-pdf/p15.pdf Publication 15: (Circular E), Employer's Tax Guide]". ''Internal Revenue Service''. 2017. p. 38.</ref>
* A [[newspaper carrier]] under age 18.<ref name= p15-39>"[https://www.irs.gov/pub/irs-pdf/p15.pdf Publication 15: (Circular E), Employer's Tax Guide]". ''Internal Revenue Service''. 2017. p. 39.</ref>
* A [[real estate agent]] or [[salesperson|salespeople]]'s compensation if substantially all the compensation is directly related to sales or other output, rather than to the number of hours worked, and there is a written contract stating that the individual will not be treated as an employee for federal tax purposes.<ref name= p15-40>"[https://www.irs.gov/pub/irs-pdf/p15.pdf Publication 15: (Circular E), Employer's Tax Guide]". ''Internal Revenue Service''. 2017. p. 40.</ref><ref name="p15a-6">"[https://www.irs.gov/pub/irs-pdf/p15a.pdf Publication 15-A: Employer's Supplemental Tax Guide]". ''Internal Revenue Service''. 2017. pp. 6–7.</ref>
* Employees of state or local government entities in Alaska, California, Colorado, Illinois, Louisiana, Maine, Massachusetts, Nevada, Ohio, and Texas.<ref>Miller, Girard. "[http://www.governing.com/columns/public-money/FICA-free-lunch-crowd.html The FICA Free-Lunch Crowd]". ''Governing''. August 12, 2010.</ref>
* Earnings as a council member of a [[List of federally recognized tribes|federally recognized Indian tribe]].<ref>"[https://www.irs.gov/pub/irs-tege/rr59_354.pdf Revenue Ruling 59-354]", 1959-2 C.B. 24.</ref><ref name="p963 pp. 2-6">"[https://www.irs.gov/pub/irs-pdf/p963.pdf Federal-State Reference Guide]". ''Internal Revenue Service''. November 2004. pp. 2–6.</ref>
* A fishing worker who is a member of a federally recognized Indian tribe that has recognized fishing rights.<ref>Notice 89-34, 1989-1 C.B. 674.</ref><ref name="p963 pp. 2-6" />
* A nonresident alien who is an [[A-1 visa|employee of a foreign government]] on wages paid in their official capacities as a foreign government employee.<ref name="foreign students 2016">"[https://www.irs.gov/individuals/international-taxpayers/foreign-student-liability-for-social-security-and-medicare-taxes Social Security/Medicare and Self-Employment Tax Liability of Foreign Students, Scholars, Teachers, Researchers, and Trainees]". ''Internal Revenue Service''. August 23, 2016. Retrieved May 12, 2017.</ref>
* A nonresident alien who is employed by a foreign employer as a crew member working on a foreign ship or foreign aircraft.<ref name="foreign students 2016" /><ref>"[https://www.law.cornell.edu/cfr/text/26/31.3121%28b%29%284%29-1 26 CFR 31.3121(b)(4)-1]". via Legal Information Institute, Cornell University Law School. Retrieved December 23, 2018.</ref>
* A nonresident alien who is a student, scholar, professor, teacher, trainee, researcher, physician, au pair, or summer camp worker and is temporarily in the United States in [[F-1 visa|F-1]], [[J-1 visa|J-1]], [[M-1 visa|M-1]], [[Q-1 visa|Q-1]], or [[Q-1 visa|Q-2]] nonimmigrant status for wages paid to them for services that are allowed by their visa status and are performed to carry out the purposes the visa states.<ref name="foreign students 2016" />
* A nonresident alien who is an [[G-1 visa|employee of an international organization]] on wages paid by the international organization.<ref name="foreign students 2016" />
* A nonresident alien who is on an [[H-2A visa]].<ref name="foreign students 2016" />
* A nonresident alien who works in [[Guam]], is a resident of the [[Philippines]], and is on an [[H-2A visa|H-2A]], [[H-2B visa|H-2B]], or [[H-2B visa|H-2R]] visa.<ref name="foreign students 2016" />
* A member of certain religious groups, such as the [[Mennonites]] and the [[Amish]], who consider [[insurance]] to be a lack of trust in God, and see it as their religious duty to provide for members who are sick, disabled, or elderly.<ref>{{cite web | last=Green | first=Parman R. | url=http://agebb.missouri.edu/agtax/issues/ssandse/amishss.pdf | title=Taxation Tidbit The Amish{{snd}}Social Security and Medicare Taxes | archive-url=https://web.archive.org/web/20150702022547/http://agebb.missouri.edu/agtax/issues/ssandse/amishss.pdf | archive-date=July 2, 2015 | publisher=University of Missouri | access-date=May 12, 2017}}</ref><ref>{{cite web | url=https://faq.ssa.gov/link/portal/34011/34019/Article/3821/Are-members-of-religious-groups-exempt-from-paying-Social-Security-taxes | title=Are members of religious groups exempt from paying Social Security taxes? | archive-url=https://web.archive.org/web/20180216181020/https://faq.ssa.gov/link/portal/34011/34019/Article/3821/Are-members-of-religious-groups-exempt-from-paying-Social-Security-taxes | archive-date=February 16, 2018 | publisher=Social Security Administration | date=January 9, 2017}} {{PD-notice}}</ref><ref>"[https://www.irs.gov/pub/irs-pdf/f4029.pdf Form 4029: Application for Exemption From Social Security and Medicare Taxes and Waiver of Benefits]". ''[[Internal Revenue Service]]''. September 2014.</ref>
* A person who is temporarily working outside their country of origin and is covered under a [[totalization agreement|tax treaty]] between their country and the United States.<ref name= international>"[https://www.ssa.gov/international/agreements_overview.html International Agreements: U.S. International Social Security Agreements]". ''Social Security Administration''. Retrieved May 12, 2017.</ref>
* Net annual earnings from self-employment of less than $400.
* Wages received for service as an election worker, if less than $1,400 a year (in 2008).
* Wages received for working as a household employee, if less than $1,700 per year (in 2009–2010).

=== Federal income taxation of benefits ===
Originally the benefits received by retirees were not taxed as income. Beginning in [[Fiscal year|tax year]] 1984, with the [[Ronald Reagan|Reagan]]-era reforms to repair the system's projected insolvency, retirees with incomes over $25,000 (in the case of married persons filing separately who did not live with the spouse at any time during the year, and for persons filing as "single"), or with combined incomes over $32,000 (if married filing jointly) or, in certain cases, any income amount (if married filing separately from the spouse in a year in which the taxpayer lived with the spouse at any time) generally saw part of the retiree benefits subject to federal income tax.<ref>{{cite web | url=https://www.ssa.gov/history/1983amend2.html | title=Social Security Amendments of 1983 H.R. 1900/P.L. 98-21 | publisher=Ssa.gov | access-date=2017-04-30}}</ref> In 1984, the portion of the benefits potentially subject to tax was 50%.<ref>Instructions for 1984 Form 1040, U.S. Individual Income Tax Return, Internal Revenue Service, U.S. Department of the Treasury. p. 11.</ref> The [[Omnibus Budget Reconciliation Act of 1993|Deficit Reduction Act of 1993]] set the portion to 85%. Moreover, since the taxable income threshold is not indexed to inflation, the portion of beneficiaries' social security payments subject to income tax has risen significantly in [[real terms]] since the threshold was set in 1984.