How is social security funded social security

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How is Social Security Funded? Social Security Insurance (SSI) is funded through taxes paid by both the employee and the employer. The taxes will appear on an employee’s wage statement as a portion of FICA. Recall from earlier that FICA is part Social Security taxes and part Medicare taxes. The employee’s portion of the Social Security tax is 6.2% multiplied by the employee’s gross (pre-tax) income up to a maximum of the taxable wage base , which is $128,700 (2018 limit). The employer must match the employee’s tax dollar-for-dollar by paying
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6.2% as well. Consider an employee who receives a gross salary of $150,000 per year. This employee will have $7,979.40 (6.2% x $128,700) withheld from their salary and the employer will also pay the same $7,979.40. The earnings above $128,700 (2018 limit) will not be taxed for Social Security purposes. This money must be sent to the Federal government periodically to keep funds flowing into the Social Security system. If the “employee” happens to be self-employed, then the relevant law is SECA, which stands for Self Employed Contributions Act. Because there is not an employer matching the employee's contributions into the Social Security system, a self-employed person must make both the employee’s 6.2% contribution and the employer’s 6.2% contribution for a total of 12.4%. It is important to understand that Social Security taxes are withheld from gross wages whenever there is earned income. It does not matter if the worker is retired and receiving Social Security benefits or not. If a worker of any age has earned income, then they will be paying Social Security taxes up to the taxable wage base limit. It is also important to understand that the taxes withheld for Medicare (1.45% for the employee and the employer each) do not have a taxable wage base limit. Employees pay Medicare taxes on whatever amount they earn, and self-employed individuals will also pay a double Medicare tax following the same logic as SECA. Q: John makes $105,000 in annual salary. How much does John pay into Social Security in the 2018? A: John has $6,510 withheld from his gross payroll and sent to the federal government as a Social Security deposit in 2018 Q: J ohn makes $105,000 in annual salary. How much does John's employer pay into Social Security in the 2018? A: John's employer matches John's deposit of $6,510 for 2018. Q: John makes $105,000 in annual salary and he is self-employed. How much does John pay into Social Security in the 2018? A: John sends $13,020 (2 x $6,510) to the federal government as a Social Security deposit in 2018. Q: Jenny makes $175,000 in annual salary. How much does Jenny pay into Social Security in the 2018? A: Jenny has $7,979.40 (TWB of $128,700 x 6.2%) withheld from her gross payroll and sent to the federal government as a Social Security deposit in 2018. How to Earn Social Security Benefits In order to receive SSI benefits, a worker must have accrued a certain number of “credited quarters of coverage.” An employee will receive one credited quarter for each $1,320 of earnings per quarter in a given year (2018 rule). Credited quarters are subject to a maximum of four (4) per year.
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