Are Social Security taxes only paid by those who make 85K or less?

[KaliTracy]

I just found an interesting site while looking for studies involving Outsourcing and Social Security Taxes. Outsourced America http://outsourcedamerica.blogspot.com/2005/01/from-our-we-love-josh-marshall-file.html

While the post itself is worth reading and investigating I wondered about this statement. “since no one pays Social Security tax on investment income or wage and salary income over about $85,000 a year”

Is this true? Are Social Security Taxes only paid by those who make $85,000 or less?

What do people here know about this – I’m trying to come on-board as quickly as possible with all of the issues this Administration is bringing up, and man, there are a lot of things swirling around in my head.

I also wonder if our Outsourced Jobs in the last 10 years have any bearing on the proposed decline for Social Security (for example, number of jobs outsourced in past ten years – and if the people here got new jobs comparable to what they originally had, or if they took lower wage jobs, if they’ve been able to find jobs, etc. (all a tough bunch of numbers to gather, I know).

I’m not sure if the data is out there – or should I say, if the data is out there and if it has been compiled in any kind of study. Or if it is moot, and doesn't matter at all. If we are to fight this “privatization” of Social Security, seems to me that we need to be fighting along with our Democratic Congress people with LTTEs, Letters to the Senate and House, and more, on as many angles against it as possible.

[vpigrad]

1. It is true

The rich are only required to pay FICA on a small portion of their income while most party members pay on 100% of their income.

[sendero]

49. While I...

.. advocate raising the cap on wages subject to FICA taxes, it is important to note that SS benefits are capped also. In other words, a millionaire will not receive any more benefit that someone who makes substantially less (sorry I don't know the amount of wages that will get you the max benefit, but it is way lower than a million.)

[HuckleB]

No.

Everyone pays, but those who make more than $85,000 don't pay SS on income over that number. It's a ridiculous system. Change that, and SS is just fine.

[seventythree]

19. yes, you are correct

and that ceiling has been raised consistently through the years. The President wants to say that African Americans are the most abused by the system -- which is absolutely untrue -- but the real large differential (abuse? by the President's definition) between what is paid in and what is gotten out is with the high income folks. The retirement age has already been raised for everyone under 60, and if you continue to work up until about 70, I think, you lose a dollar of SS for every 2 dollars you make above a small amount, even though, I believe, you are still paying FICA taxes. I don't think that ever stops if you are working. The real problem is with Medicare, not social security. The original poster raises interesting questions about how outsourcing is affecting all of this. I think I read where illegals can claim SS benefits if they have had enough quarters and have the checks sent to them in their home country, or maybe that was a proposal.

[papau]

2. FIRST 90 k OF wages are taxed - the remaining wages above 90k are

not taxed.

[John BigBootay]

3. You pay on income UP TO $85K. But not more than $85K. n/t

[Cleita]

14. It's gone up to $90,000 this year.

They need to remove the caps and tax all of it for the well paid. Then we would have no problems, not that we have a big one now. Not like they would make you believe. The neo-cons are against entitlement programs as they percieve them so they want to eliminate them.

[Mystified]

4. Not exactly

I think the amount is actually $87k, but I'm not positive. Anyway, people who make over that amount do pay SS taxes, but only on earnings up to $87k. For example, if you make $150k a year, you pay FICA on the first $87k, but not on the remaining $63k.

[Ian David]

5. Sort of. You only pay social security on the first $89,000 of income

So, if you make $90,000 a year, you pay as much into social security as Bill Gates does.

But you and Bill both get the same amount out when you retire.

[Cleita]

16. This is the problem.

I have no problem with Bill Gates getting Social Security. After all he paid into it. But in fairness he should pay the same percentage as his household help does. He won't miss the money and someone will benefit from it, probably the same household help he underpaid all those years.

[One_Life_To_Give]

23. Tax or insurance policy

The question becomes what is Social Security and Medicare?

If it's an insurance policy then the payment in should reflect the expected benefit out. Just like a life insurance policy, you pay more for a $200,000 than a $100,000 policy.

If it is just a Tax and Federal Program. Then it can be financed by any tax, and benefits should not be tied to tax paid.

What we have is a hybrid. Benefits rise with the value of payments in, but in a progressive manner. The benefit obtained by completing only the minimum requirements to collect are significantly higher in relation to the FICA paid than for the person making at or above the Cap.

[One_Life_To_Give]

24. Dupe

Dupe (My big fingers)

[CindyDale]

6. No, they are paid by everyone up to $85K of income

Actually, if they made it paid on all income that would probably fix everything, but then again, this admin would probably loot all that money, too.

[BlueEyedSon]

9. Or just raise the ceiling to $150k, $200k... whatever fixes the funding.

[CindyDale]

17. I would raise it to infinity

and any surplus can be used to pay for Medicare and to raise pensions. The SS pension is too low now anyway.

[seventythree]

22. How about this?

Take all inheritance over a certain amount and require that it go to a private account to be paid out upon retirement? For young workers, when the "pot" in the private account is of a certain level, there is no social security benefit.

[Yupster]

45. Will you raise the employer half too?

I'm thinking of something like a baseball team where the payroll of million dollar employees are huge and the team may break even or lose some money. You want to hit them with another $ 10 million in payroll taxes? Without any warning? That sure would blow their budget planning.

[against all enemies]

33. Funny how the flat tax stops at a certain income.

[BlueEyedSon]

7. No. But if you make more, you are not taxed on the amount over 85k

It's a tax with a "cap".

[JHB]

8. You have it backwards...

It's "only" paid on the first $85,000 of income.

If you make $8,000, you pay FICA taxes on $8,000

If you make $50,000, you pay FICA taxes on $50,000

If you make $85,000, you pay FICA taxes on $85,000

If you make $100,000, you pay FICA taxes on $85,000

If you make $5million, you pay FICA taxes on $85,000

Get the picture?

[KaliTracy]

10. sorry, i phrased my question wrong. thanks n/t

[ElsewheresDaughter]

40. so why not just raise the cap ? would that fix it?

[JHB]

47. Probably. Raising it would certainly help fend off the "crisis".

It's one of the options, but since it means rich people paying more money I'm sure you can figure out why we haven't heard more about it.

[cam75219]

11. Over 85k or whatever it is

there is no SS tax, but tax is paid on that 85k. I'm not sure about investment income, but I don't pay SS on any of my capital gains.

[leanin_green]

12. Well, I know for sure that SS is funded by payroll taxes.

So, if you don't work, you don't pay. Who does this sound like? The rich who live off investments or hide their wages in shelters, tax-deferred schemes etc.

You know, this issue is part of a larger plan by the Right to end what they feel are entitlement programs, SS being one of the largest. Corporations and business owners are tired of paying their half of the SS tax and this is the first step to removing it. I mean, if a large segment of society chooses to use private accounts, that's less money that businesses have to come up with. It adds up to another tax cut to corporations and business.

[fat free goodness]

35. payroll tax = not entirely correct

No, that's not entirely true. It's funded by payroll DEDUCTIONS (not the same as payroll taxes) for those of you who work for someone else. You pay a certain amount, and your employer matches it.

Those of us who are "rich business owners" have to send our contributions in quarterly. Then we also get to send in the matching amount.

I believe this position is unpopular here, but social securuty IS broken. It's broken because the amount paid in by an individual has little to do with either how much they may get from it later, or how much they make in a year.

For instance, I pay in twice as much as one of my employees who makes the same I do.

[sandnsea]

44. That's a total distortion

First of all, you get to deduct a portion of your SS Payroll Tax that employees do not. Not to mention the rest of the deductions you get that they don't.

Second of all, we've decided as a people that employers have a certain responsibility to labor. The employer benefits from living in a capitalist society and recognizes that benefit by not exploiting workers. SS, worker's comp, unemployment, are part of that recognition. We don't work people to death and then throw them away.

This system is not broken at all. People, like you usually, love to point out how the poor in this country are wealthier than some of the rich in third world countries They always seem to miss the fact that the rich in this country are rich beyond comprehension. These programs are a large part of what keeps our economy stable enough so that the rich don't suffer from massive depressions either. Or the local business owner.

What's really stupid is that people are even considering a 40% cut in benefits for a miniscule return of profits over the 3% that the government is going to withhold. It's a rip-off.

[REACTIVATED IN CT]

13. The limit is 90,000 for 2005...

it goes up each year. But technically, it is not the 1st $90,00 of your wages, its the first $90,000 of your SS taxable wages. If you have a pretax deduction for dependent care, medical/dental insurance premiums or pretax commuting expenses - those lower your SS taxable wage base. So someone earning $60K who elects $5000 dependent care pays SS tax on $55,000. A Flexible Spending PLan election of $2,000 further reduces it to $53,000

Probably more info than you wanted

[KaliTracy]

18. actually I appreciate the information. this just seems so crazy that *

is pushing for clamity for our children and grandchildren, when really, all they need to do is change the allocations a little... I mean, hell, I was ready to work a couple of more years (I'll be 40 this year), and even would stomach having more taken out -- easy enough fixes. If they just raised the cap to 100K or even 150k wouldn't that bring more $ into the pot? (and, let's not forget, there are billions in the fund right now -- they never say that).

[AValdoux]

15. paid by payroll taxes

You are taxed 6.2% on 87,900 income. You employer has to match that. Th maximum yearly contribution to SS is 10,899.60 (5449.80 by you and your employer).

AValdoux

[rla]

20. compromise

If the solvency of the SS program is in doubt then the ceiling of
taxable incom should be removed rather than raise the rate on the working poor and middle class or reduce benefits. The Democrats should compromise with the cheap labor Republicans allowing the
private accounts proposal in exchange for removing the ceiling on income.

[cattleman22]

38. That is problematic

Benefits are based on how much a person paid in. If you raise the tax ceiling, then the benefit ceiling is raised as well.


The tax ceiling and benefits ceiling were implemented so that SS would not turn into a welfare program in which the "rich" were forced to pay but did not benefit.

[seventythree]

21. great point

raise the ceiling and you raise the cost to the employer, right? Let's see -- how many more jobs can we get to flee the US? Or how many more companies go to 401(k)'s instead of pensions or go bare on health insurance. Nothing is ever simple, we surely know that. I wonder if we only allow the low income to divert some of their SS taxes to a private account, of all ages, as they are the least likely to build a nest egg aside form SS, how that would impact the equation. How about that lock box which never happened? How about a national sales tax? Let the big consumers pay the freight -- nothing they buy here is made here anymore (excuse the hyperbole).

[Stinky The Clown]

31. The notion that this costs an employer is somewhat disingenuous

I am self employed. I pay the whole boat, not just half. And since I exceed the cap, I pay the max. (I would also be perfectly happy to see the cap go away and pay to the full extent of my income.)

Money the employer pays, were he not to pay it, would go one two places. His pocket or his employee's pockets. The reason this was set up this way (and not as a tax totally on the employee) is that the employer gets to write it off.

However, we self-employed schlubs .... we don't get the write off. We just pay.

[seventythree]

37. good points

[TR Fan]

43. I'm not sure I quite understand this post.

You say that "the notion that this costs an employer is somewhat disingenuous" and then go on to say that "were he not to pay it, would go one two places. His pocket or his employee's pockets." That seems like a perfectly good definition of "cost," i.e., if I didn't have to pay it, I'd have it, but I have to pay it, so I don't have it. Raising or eliminating the current cap would certainly result in employers paying the additional 50% as well. Now, certainly there may be write offs for that (maybe 33%), but it is still a cost.

[KaliTracy]

48. but companies are already doing this -- our company is going to the

"personal" health accounts (rumor has it) -- don't know yet if other plans will still be available. I'll find out Monday. But our company doesn't have a lot of 6 digit employees -- just the CEO and the President as far as I know.

Aren't jobs that are going overseas part of the problem? How has outsourcing affected Social Security Taxes?

[REACTIVATED IN CT]

28. That was last years max...

I am a payroll/benefits administrator - I gotta know this stuff!

[illflem]

25. Raising the cap amounts to a tax hike

to the individual as well as the employer.
How about just installing a maximum a income beyond which a person isn't eligible for SS?
Someone earning 200k per year during retirement hardly needs SS.
It always irked the hell out me that Reagan bragged about collecting SS while he was president.

[REACTIVATED IN CT]

29. I would have no problem with that type of solution

In theory it sounds good. In practice, how would it work? Would your eligiblity for SS be determined by your most recent tax return? What happens if you run out of money from your 401k during the middle of a year? Would SS benefits then begin for you? Would you have to live on cat food for a while until you could prove to the SS Admin that you now need the benefits?

I think the fact that Bill Gates, et al return part of their SS benefits in the form of income taxes is the better way to accomplish this

[seventythree]

41. wasn't this an insurance program?

I believe that is how it was sold. There's also the concept of "earning" in retirement as opposed to drawing down from what you have earned and set aside for your old age. Should we penalize those who DID plan? Also remember, whatever is left from an oldster's assets goes to the next generation. If the social security payment was never needed to live on, it will pass to the kids, as an asset, and they can then invest it for the day the system tanks. :)

[theboss]

26. No, the tax is capped at $85,000

You only pay on the first $85,000 you earn. Therefore a person making $85,000 a year pays the same as a person making $850,000 a year.

[eallen]

27. One thing to keep in mind: the payout is progressive.

While the social security tax is regressive, considered by itself, the payout is steeply progressive. In two ways. First, it is not the case that someone who has made $84k every working year will get 7 times the social security benefit as someone who made $12K each year. Rather, each increment of FICA paid during a work year "buys" an ever smaller amount of benefit, so that in terms of dollar benefit for dollar paid, those with smaller incomes get the most bang for their buck. Second, as of some reforms back in the 1980s, social security benefits themselves are taxed. A retiree who has no other or little other income is unlikely to pay much if any income tax. Many retirees pay no tax on their social security benefit. But Bill Gates will retire in the highest tax bracket, and will give back a third or more of his benefit.

[KaliTracy]

30. ok...someone help me... instead of crying "Flat Broke" by 2042, and

making us think our kids will be living in shacks and revamping the entire system, why wouldn't a viable solution be raising the cap to 100K or 150K for starters?


And what about Outsourced Jobs? Does that have any bearing in any of this, since many companies have taken large segments of their working population away from the states and hired people overseas?

[TahitiNut]

32. OK... look at this chart, first.

Now, let's imagine that the "income" depicted is all payroll wages ... no dividends, no capital gains, no interest. Now, imagine a line running across the graph at a height of 72.3%. Below that line are all incomes below $80,400, which was the maximum income subject to payroll taxation (OASDI tax) in 2001.

94.8% of all adults (over 14 years old - when work permits are allowed) in the U.S earned less than the maximium taxable income for OASDI taxation. The remaining 5.2% of all adults received incomes greater than that, totalling 27.7% of all income.

Raising that imaginary line across the graph at the 72.3% level doesn't increase the OASDI tax revenues very much because there are so few people who earn more than that ... but what they do 'earn' is fucking enormous, more than five times as much as the average person.

What is needed is to raise the curved line ... raise the payroll earnings of those who pay OASDI taxes on everything they earn.

You see, payroll taxes can only be applied to what people earn. The problem is that the bottom 90% are getting fucked! They're not being paid enough. The miniimum wage is lower than it has been for 50 years. Income inequity is greater than it has been in over 50 years.

It's a question of economic justice!! (I hope this helps make that clear.)

[seventythree]

39. the concept of economic justice

has always given me a little trouble. The high income people I know are either 3rd or 4th generation manufacturers who inherited from their ancestor's many hours of hard work, or are professionals who accumulated huge debt for school and also work extraordinary hours. If you knock out the CEO's high salaries, allowed, in theory, via the democratic system in corporate governance, you have the entrepreneurs (God bless them for taking the risks which brought jobs), those born on third base who think they hit a triple, and the professionals. We probably each have our niche of angst, mine being with the inheritance group as I have a problem with those I've known who disdain the "under" classes -- which might be where they would be but for a rich, hard working ancestor.

I watched high school class mates enter the factories (not that there is much of that left), make good incomes, have company pensions and employer subsidized health care, buy homes when they were cheap, and work a 40 hr week. I don't begrudge them their decision, nor should they begrudge mine of delayed gratification, high schooling debt (we didn't have Pell grants in my day -- you worked through school and borrowed), 50 - 60 hr work weeks, self paid retirement and health care, and high end income (relatively speaking) down the line. My teacher friends retired with 70,000 plus guaranteed pensions and good health care plans (if they were wise and accumulated quarters during the summer, they also get social security) -- have you any idea what kind of money has to be accumulated privately and set aside to provide the same benefits at 57 which will last until your late 80's? It's in excess of a million last I checked, and then you better hope your projected interest/appreciation doesn't tank.

[Spacejet]

34. It's rediculous

I made $1000 in two months last year and almost $100 of that was taken.

The rich and middle class need absorb more of the burden.

[fob]

36. Taken? Would you care to describe the breakdown of WHO "took"

WHAT?

A part of that $100 was "taken" as a "premium" on the insurance policy that is SS. The other portions that were "taken" by taxes paid for your part of local, state, federal spending. When you made the $1,000 did you enjoy travelling on paved roads?

People, this is the REAL meaning of that damn freeper bumpersticker; Freedom isn't Free, not the faux-patriot message it's peddled as.

So I ask you spacejet, what would you have done if you were given that $100 BUT all the services it currently helps to pay for were switched to pay as you go? How much would you voluntarily put away for your retirement? Would you get your neighbors together and pay a contractor to pave your street?

Questions are mostly rhetorical, no answer necessary.

[ProfessorGAC]

42. 2004: $87,900 2005: $90,000

Those are the caps for the last two years. Once you hit that you stop paying SocSec tax. I've been at the cap for nearly 15 years, so i know about where it's been each year, because they send a note out for those above it every year, and the contribution to 401k is capped due to tax laws. By law, they have to notify all people above the SS cap to remind them that their 401k contributions are capped, so there's no argument later when people would have to pay taxes on what's supposed to be pre-tax savings.
The Professor

[Jacobin]

46. Only on EARNED INCOME

So if you don't have a salaried position, but you inherited a boatload of real estate or stocks, and you sell $300,000 a year of your stuff to live on, you pay NO social security tax (conveniently named 'payroll tax', which is a complete misnomer in other ways.

[Eric J in MN]

50. There is no FICA tax on "investment income." It's only on wages.

Joshua Micah Marshall knows that, but his phrasing there is ambiguous.

For clarity, he should have written:
no one pays Social Security tax on investment income, or on wage and salary income over about $85,000 a year.