Federal Social Security Tax Limit
- The government levies a Social Security tax against income earned by citizens and legal residents of the United States. The income this tax is levied against is capped by the U.S. Congress and may change from year to year. The percentage of tax owed to the government is also determined by the U.S. Congress and may be updated from year to year. In 2011 changes were made to decrease the amount of Social Security taxes that were owed by employees as a way to increase the amount of paychecks for U.S. workers in hopes of stimulating the economy
- If an employee receives a paycheck, his employer is responsible for withholding 4.2 percent of his income in 2011. This is non-negotiable and will be owed for the first $106,800 made in a calendar year. This is reduced from 6.2 percent of earned wages in 2010.
- An employer is responsible for paying the government 6.2 percent for each payroll dollar paid to an employee up to the first $106,800 each employee earns. While as of 2011 the government has changed the employee responsibility, the government has not changed the employer's responsibility.
- Those who are self-employed will file a form 1099 with their tax returns and are responsible for the complete 10.4 percent of Social Security tax due to the government in 2011, down from the 12.4 percent that was paid in 2010. Maximum taxable income that is attributed to a person who is self-employed remained unchanged at $106,800 in 2011. This means that someone who makes the maximum amount of $106,800 as an independent contractor or business owner will save 2 percent in taxes in 2011 or $2,136.