No week goes by without questions about Social Security and taxes. Most of the time, taxpayers wonder how they can get their benefits. Here’s what you should know about how to qualify for Social Security retirement benefits and how to make sure your work and tax history are properly recorded so you can receive the maximum amount of benefits. I will explain.
foundation
Wages and self-employed income are subject to Social Security and Medicare taxes. For a salary earner, Social Security and Medicare taxes are called his FICA (Federal Insurance Contributions Act) taxes and are deducted from his paycheck. Since the self-employed person pays both employee and employer contributions, the tax on the self-employed income is sometimes called his SECA (Self-Employment Contribution Act) tax.
If you are employed, you pay social security tax at the rate of 6.2% as an employee and your employer pays the same rate on your behalf. If you are self-employed, you are responsible for both parts.
The social security tax has a wage cap. That means you will pay Social Security taxes on your income until you hit the magic number. After that, your wages will no longer be subject to Social Security tax. Towards 2023, That magic number is $160,200. That means he will pay social security taxes on his income whether he earns $1,000 or $100,000. But what if you earned $160,201? You pay Social Security taxes on the first $160,200, but not on the additional dollars. And what if you made $1,160,200? Same result: You pay Social Security taxes on the $160,200, but you don’t have to pay the extra million.
In contrast, all wages are subject to Medicare taxes. If you are employed, as an employee he pays a 1.45% Medicare tax and your employer collects taxes at the same rate. As before, if he is self-employed he will pay both parts and the total tax rate will be 2.9% for him.
High-income earners are also taxed 0.9% additional Medicare tax For single taxpayers, it is added to wages over $200,000. The threshold is $125,000 for her if the couple files separately, and $250,000 for her if they file jointly.
If you’re a salary earner, your employer collects your Social Security and Medicare payments and sends both a portion of it and your share to the government. The self-employed pays her IRS directly. These taxes go to retirement benefits, no matter who paid them.
forms and reports
In 2023, receiving payments could be of any kind. Wages and self-employed income are taxable regardless of the method of payment, such as cash or cryptocurrencies such as Bitcoin BTC. Also, it is not illegal to receive rewards in cash (or virtual currency). There may be many valid reasons for non-traditional compensation arrangements. However, if you receive your paycheck outside of the banking system, keep proper records and make sure payroll taxes are paid. Remember: If you are an employee, your employer must track your payments, withhold taxes properly, and make commensurate contributions on your behalf. If you are an independent contractor, you are responsible for tracking receipts and making proper payments to tax authorities.
When tax time comes, the amount paid to you and the payroll tax deducted from your compensation will be reported on Form W-2 or Form 1099.
You might think that if you didn’t withhold taxes or receive tax forms, you wouldn’t have to report that income, but that’s not true. If you do not receive a tax form, you may overlook an oversight, questionable work arrangements (often paid behind the scenes), or independents who are taxable to the payee but not subject to information reporting by the payer. may be due to contractual work performed. . Regardless of the reason, you are responsible for paying taxes on your income even if you have not received a tax form.
If you haven’t received your tax forms, you may not want to report your income. However, this strategy also has a downside. In addition to potential civil and criminal penalties for failing to properly report your income. The lack of an official record of your compensation for tax purposes means that you, like many people, need to establish credit, prove your mortgage income, prove your source of income to receive certain tax breaks and government benefits. Means there are no records for other purposes. We constructed a retirement income history that was discovered during the pandemic and paid out by the Social Security Administration.
your earnings history
To be eligible for Social Security retirement benefits, you must prove your income history. Most workers pay Social Security, including those who do not need to file tax returns because they do not earn enough to pay taxes. IRS almost 161 million individual tax filers in 2022but as of June 2022, SSA is about 182 million people I worked and paid social security taxes.
Social Security pays different types of benefits, including disability benefits. However, the most common is retirement benefits. It aims to replace a percentage of your pre-retirement earnings based on your lifetime earnings. The amount depends on your lifetime income and age when you start receiving benefits. Generally, the sooner you receive your benefits, the lower the amount you will receive.
To be eligible for benefits, most people need 40 credits, equivalent to about 10 years of study. Earn credits as you progress. In 2023, he will earn 1 credit for every $1,640 in earnings, up to 4 credits per year. The amount required to earn 1 credit typically increases each year.
Social Security bases your benefits on how much you’ve earned over your lifetime. The more you earn, the bigger the benefits (limited). If you had a year in which you didn’t work or made less money, your benefits may be reduced. Your benefits may also be reduced if you work but don’t have a record of your compensation.
check your income
Social Security tracks your lifetime income history. Statements may arrive in the mail, but you can also check your history online.To check it, go to my Social Security account page.
You must be signed in. If you are clicking through for the first time, you will also need to register. Like the IRS, SSA currently ID.me to verify your identity; After creating an account, you can check your earnings record and estimate your profit.
SSA encourages taxpayers to review their earnings records annually. If anything is missing, it will not be credited correctly and will affect future rewards. We also recommend that you check it regularly. If too much time has passed, it can be difficult to obtain old tax documents (online wage and salary records are only available through the following methods). IRS.gov past three years). Additionally, years after the fact, some employers may go out of business or be unable to provide outdated salary information.
What if I’m wrong?
There are several reasons why your earnings history may be incorrect. Cited by SSA Common reasons are:
- Your employer reported your income using the wrong name or social security number.
- Your employer incorrectly reported your income.
- Married or divorced and had a name change but did not report the change to Social Security.
- You worked with a social security number that didn’t belong to you.
You can request corrections online. my Social Security account page. You can also call SSA toll-free at 1-800-772-1213 (1-800-325-0778 (TTY)). Telephone reception hours are from 8:00 am to 7:00 pm on weekdays. Wait times to speak with a representative are typically shorter Wednesday through Friday or later in the day, according to SSA.
Either way, you’ll need evidence such as a payslip or an older Form W-2 or 1099 to support your claim.
It is also important to note that income cannot normally be adjusted after 3 years, 3 months and 15 days from the end of the tax year in which the salary was paid. However, SSA says it can amend subsequent records in certain circumstances, such as verifying records with tax returns filed with the IRS or including wages reported to have been paid by employers. You can, but it won’t show up in the SSA record.
Conclusion
Retirement can be difficult. Don’t make matters more difficult by trying to manipulate the system. Alternatively, don’t sit back and assume the system is being addressed. To ensure you receive the maximum amount of benefits, report your income properly each year and check your income records to see if your employer does the same.
