Hello fellow fools, Can anyone tell me what the limitation on FICA "contributions" are for 1999. Not too sure which board to post this to, but I'm sure some one here must know the answer. thanks in advance!
For Social Security, it's $72,600. You pay 6.2% of your earned income on that. For Medicare, there is no limit. You pay 1.45% of your earned income on that. If you do not work for wages, and get your money from dividends, interest, capital gains, and what not, you pay zero, zip, zilch, nada. If you work for yourself (my favorite example is a self-employed hairdresser in Roxbury, Massachusetts) you pay double what an employee does, or 15.3%.In all cases, that's off the top. So, if you contribute 6% before taxes to your 401(k), that "before taxes" refers only to your 1040 income. That 6% will be taxed as far as Social Security is concerned.
For 1999, the income cap is $72,600 for the Social Security portion. If you are an employee/employer, the combined SS and Medicare rate is 7.65%; if you are self-employed, its 15.3%. After you hit the $72,000 cap, you continue to pay Medicare at a 1.45%/2.9% rate.Zev
JABoa said: If you work for yourself (my favorite example is a self-employed hairdresser in Roxbury, Massachusetts) you pay double what an employee does, or 15.3%.Actually that's figured on only .9235 of your Self Employment net, so it's a little less than double what an employee pays. You also get to deduct 1/2 of it on Line 27 (that doesn't cut the cost in half, though). Ed
Ed, regarding #13190, you are of course quite right. I was simplifying. What gets me, however, and this will come up again and again so long as I keep posting, is that people who are barely holding their heads above water are almost certainly paying more of their income in taxes than are the super-rich.I could blather on, but it would just raise my blood pressure for no good purpose.
Going a bit off topic...Why is there a limit to Social Security taxes? It makes the tax regressive. Which seems odd, since income tax is progressive.If there weren't a limit to Social Security taxes, wouldn't that save Social Security, without resorting to rate hikes, increased retirement age, or accounting legerdermain?Why are these questions not being discussed by politicians?MichaelWho just can't stop asking questions.
Why are these questions not being discussed by politicians?This question about the tax cap has in fact been discussed quite a lot. There are many proponents of increasing the cap to fix the system long term. According to a couple of sources I found, this one change would fix about 90% of the long term actuarial imbalance ( I don't put a lot of faith in the type of accounting that is used, but nevertheless that is how the numbers add up ).The reason that this fix is politically quite attractive is that it affects about 7% of the working population. Over 93% of workers are at or below the limit, so most people probably would support the change since it does not affect them.The one issue that many politicians have brought up against making this change is that it undermines one of the basic tenets of the program: fairness. These workers would not receive any additional benefit for the extra taxes paid. This would be one step towards turning the program into a welfare program, which would inevitably undermine public support. rustedSoul
UUinMN, compare the politics of capital gains taxes with the politics of social security. You will see that SS is perceived as a program from the average man and is carefully crafted to maintain that support.Capping SS taxes also caps SS benefits. This prevents the program from paying generous benefits to the wealthy. Its a political compomise that most feel is reasonable. Although of course the tax cap keeps moving up--as do the max benefits.
<<<<This would be one step towards turning the program into a welfare program, which would inevitably undermine public support.>>>>I would suggest that SS has always been a welfare program, but was originally and is still sold politically as an insurance program. Many of the oddities with respect to SS become clearer when analyzed in this light.For example, there is no means testing to receive SS but there is a back end test that effectively taxes SS benefits if your income is over a certain amount.Another example, between 65 and 70 (I believe) there is some kind of reduction in SS benfits if you have earned income, but no reduction if you have dividend and interest income (subject to first example).Etc.- As otehr posters point out, doing away with the tax cap would not affect thaqt many people, but would chip away at the facade of SS being an insurance program. The medicare/medicaid (?) portion [1.45%, IIRC] had the same cap until a few years ago. First it was raised to 125k, and then a few years therafter it was uncapped and is now not limited at all. I suspect that the oter cap will come off within the next two decades and probably within the next decade.Just my $0.02. Regards, JAFO
Another example, between 65 and 70 (I believe) there is some kind of reduction in SS benfits if you have earned income, but no reduction if you have dividend and interest income (subject to first example).Earned income reduces benefits, while all other income increases the taxes on benefits. If take into account the reduction of benefits due to earned income, only a fool would continue to work. The main reason this program keeps the elderly out of poverty is due to the incentives created by the near confiscation of earned income for retirees between the ages of 62-70. The worker gets reduced benefits for earned income in addition to paying FICA/income taxes on the income. It never made sense to me why a retired worker collecting benefits needs to continue to pay FICA taxes. (To be fair, the SSA does recalculate benefits each year. So, if the retiree's potential benefit increases due to these earnings, they receive a higher benefit).The program has all the markings of a welfare program, financed by an just another (regressive) income tax. The strongest indication that this is the case is the apparent dependency created by the earned income rules.rustedSoul
Another example, between 65 and 70 (I believe) there is some kind of reduction in SS benfits if you have earned income, but no reduction if you have dividend and interest income (subject to first example).Does this mean that if my primary income during that time is from withdraws from IRAs, 401k's, etc, that this is unearned income and thus doesn't reduce SS benefits? I thought so, but just wanted clarification. Thanks.Bob H.
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