Social Security Tax

Social Security is a U.S. public benefits program. It provides retirement and disability payments for millions of Americans. It’s expensive to provide these benefits. The federal government taxes employers and employees to pay for the program.

This article explains the Social Security tax. Small business owners must collect the tax from their employees. They must also deposit it with the federal government. You could have to pay fines or face criminal charges in extreme cases if you don’t. Talking to a Social Security tax attorney in your area is a good idea. They can give you legal help and help you avoid tax problems.

What Is the Social Security Tax?

Social Security is a federal benefits program. The Social Security Administration (SSA) administers it. It pays the following benefits to people who paid into the program while they were working:

• Retirement benefits
• Disability benefits through Social Security Disability Insurance (SSDI)
• Survivorship benefits
• Benefits to the family of Social Security beneficiaries

The government funds the Social Security program through a payroll tax. Employers and employees must pay the tax under the Federal Insurance Contributions Act (FICA). Self-employed people pay the tax as part of the self-employment taxes. They pay the self-employment tax with their federal income tax. The payroll and self-employment tax also includes the Medicare tax.

Social Security taxes are paid into two trust funds. They are the Old Age and Survivors Insurance Trust Fund and the Disability Insurance Trust Fund. The government makes Social Security payments out of these trust funds. The tax rate in 2024 is 12.4%. The employer and employee each pay half. Self-employed individuals must pay the entire amount. The government only taxes the first $160,200 in wages. So, high-income taxpayers end up paying a lower rate.

Some people don’t have to pay the Social Security tax. You may be able to get an exemption if you’re a member of one of the following groups:

• Certain religious organizations
• Nonresident immigrants
• Students who are working at the school where they’re enrolled

Social Security is different than Supplemental Security Income (SSI). Social Security benefits depend on your age and how much you paid into the program during your lifetime. SSI is based on need.

What Happens if I Don’t Pay My Payroll Taxes?

The Internal Revenue Service (IRS) enforces U.S. tax laws. When you’re an employer, you must withhold the employee’s part of the Social Security tax from employee paychecks. You must then deposit those funds with the federal government. The IRS can impose penalties if you don’t.

IRS penalties depend on the severity of the offense. They range from a fine to criminal charges. If you’re late depositing the Social Security tax funds, the IRS can fine you. You may also have to pay interest on your back taxes. You could face criminal charges for more egregious offenses. For example, using the money you withheld from employee paychecks for your benefit.

When Do I Need a Lawyer’s Help?

A lawyer experienced in the Social Security tax can be essential to every small business owner. They can give you legal advice and help you understand what taxes you must pay. They can represent you in a tax dispute with the IRS. A tax lawyer can also help you lower your tax liability through tax planning.