You could pay 279 USD additional social security tax in 2019 – The Motley Fool

The Social Security Administration, or SSA, has recently announced changes to the program for 2019 related to inflation. One of these changes concerns the amount of earned income that may be subject to social security tax, while the abridged version indicates that the United States workers could see a significant increase in the wage bill of social security .

In this spirit, here is a brief overview of the functioning of the social security tax, the amount of income that will be taxable for social security in 2019 and what that could mean for your possible social security benefits.

Source of the image: Getty Images.

How does the payroll tax on social security work?

The taxes that American workers pay to fund social security and health insurance programs are collectively called FICA taxes and are often simply called payroll taxes.

The social security portion of the payroll tax is called the OASDI (Old Age, Survivors and Disability Insurance) and is valued at a rate of 6.2% for employees and employers. The Medicare portion is an additional tax of 1.45%. As with the social security tax, employees and employers also pay the Medicare tax.

Although the Medicare tax is assessed on all income, there is an annual limit to the amount of earnings subject to the social security tax. And it is important to emphasize that only deserved income is considered – that is, income from a job or company in which you participate actively. Passive sources of income, such as interest, dividends or capital gains, are not taxed for social security purposes.

The maximum social security tax for employees will be $ 279 higher

For 2019, the maximum taxable income from social security increased from $ 128,400 to $ 132,900. In other words, if you earn $ 132,900 or more, an additional $ 4,500 of your income will be taxed for Social Security.

Based on the Social Security tax rate of 6.2%, this means that your social security tax could be $ 279 higher next year if you have a high income.

To go a step further, the payroll tax for 2019 will be evaluated as follows:

• 65% on first income of $ 132,900 (6.2% for social security and 1.45% for health insurance).
• 45% on any earned income greater than $ 132,900 (Medicare only).

For the self-employed, the increase could be doubled

If you are self-employed and earn more than the 2019 taxable maximum, your social security tax increase could be twice as much.

Self-employed people are considered both as the employer and the employee for the purpose of payroll tax, so they must pay both sides of the tax. For social security taxes alone, this means that high-income self-employed people could pay up to $ 16,479.60 in 2019, or $ 558 more than the maximum social security tax for self-employed workers. 2018.

But your potential benefits could also be higher

The increase in the maximum taxable earnings of social security has the counterpart that the maximum benefits of social security will also be higher. You can read a thorough discussion of the Social Security Benefit Form if you wish, but the key point is that the benefits you receive initially are based on your 35 highest earning years up to the taxable maximum of each year adjusted for inflation.

Thus, as inflation occurs and the taxable maximum increases over time, social security also benefits from the increase in high incomes for life. In fact, the maximum Social Security benefit for a worker who retires at the retirement age in 2019 will be $ 2,861 per month, or $ 73 more than in 2018. In fact 39 other terms, although your payroll taxes are increasing in the meantime, your security benefits may be higher.