Somebody explain to me the $87,900 Social Security tax cap

[Hippo_Tron]

I don't understand how it works? Is income over $87,9000 not taxed for social security?

[ogradda]

1. that's correct.

well for this year. that's the limit for the 2004 tax year.

[Hippo_Tron]

2. That's the dumbest thing ever

Why don't we just make millionaires contribute more to social security? Wouldn't that fix the system overnight?

[Skink]

4. Ya think

[ogradda]

5. This is a big part of unfair taxation.

Social security tax is a far heavier burden for lower income people.

[Hippo_Tron]

7. So, another dumb question... Why didn't Kerry propose this?

His was labled as claiming that social security shouldn't be privitized but not having a plan himself. Why didn't he just suggest that taxable income for social security needs to be raised to a new bracket, since he was already proposing raising taxes on the rich.

[ogradda]

8. Good question.

the social security tax rate is 6.2 now, if you are taxed on earned income(it's only on earned income) and you make a lot more than the ceiling well....you can see why upper income people wouldn't like that. Of course, it doesn't matter with unearned income but still.

[Hippo_Tron]

10. Upper income people vote Republican, who cares about them?

Not to mention that those making over 200k are only 2% of the country.

[ogradda]

11. This kind of thing has a lot to do

with why they vote republican i think.

[Hippo_Tron]

12. Yea, it's called Greed...

Something that democrats are supposed to be against.

[Muzzle Tough]

15. Actually......

The cap was created by FDR and Democrats as part of the original Social Security program. The original income cap was $3,000. And the tax rate was only 2%.

The reason for the cap is because there is also a cap on Social Security payments.

[Poor Richard Lex]

26. so let's keep the cap on payouts and remove the 89k cap on income

Once the system is all paid up we can start capping income and lowering percentage points again, with the goal being 3k/yr (adjusted to inflation from the time the bill was signed) and 2%.

Its not like the rich are going to need extra social security payouts anyway.

[Yupster]

35. Better to remove the cap on premiums and

payouts.

The bendpoints in the formula for payouts is so progressive, the top people would get almost nothing for their extra premiums anyway, but it would be a much easier sale if you increased the benefits with the taxes, even if the benefits only went up a bit and the taxes quadrupled.

[Hippo_Tron]

39. Agreed, everybody is entitled to SS if they pay into it...

It's just that those with more money should pay into it more like everything else.

[MissB]

31. Not all upper income people vote Republican

:hi:

[Hippo_Tron]

40. Not ALL, but most people in that income bracket do...

The ones that don't...

1) Have a heart

2) Are smart enough to know that with Republicans controlling the economy, the middle class will be eventually destroyed and there will just be the very rich and the very poor.

[Goldeneye]

22. I think we need to start calling em like we see em

Don't call them wealthy call them rich.
If they're cheaters call them cheaters.
If theyr're liars call them liars.
If they're druggies call them druggies
If they're stupid call them stupid
If they're hypocrites call them hypocrites

We always pretty things up for them. That's not our job. That's they're job.

I think we just need to start smacking them around.....they're too damn stupid to learn anyother way.

[w4rma]

30. He did. Sen. Kerry suppored removing the cap alltogether, I believe. (nt)

[Blue Wally]

20. The cap has been steadily raised over the years

Raising the cap gives a short term boost (income) to SS, but in the long term, the cap raise increases benefits (outgo) based on your "high thrity-five years" average wages/salary. Raising the cap will never "fix" the system as constructed. Given its short term boost to the system, you probably will see gradual increases to the cap.

[bain_sidhe]

3. Right, WAGE income over $87,900

isn't subject to FICA (I think it is subject to Medicare tax, though).

It's important to note, that ONLY wage income is subject to FICA. All the money you make on your investments isn't subject to any payroll tax. As an interesting graph, check out who gets the most from investments vs. wages (I know, you can probably guess, but I like seeing it illustrated!)

[vpigrad]

6. The bottom graph has to be wrong!

According to it, the average family makes about $2,500 per year on investments. I do about 600 tax returns a year, and I can't remember ever doing one that has made even a tenth of that amount. That just can't be right. From what I've seen, it's closer to $10, the amount the family receives from the rip-off low interest rates on their checking accounts.

That graph looks like repuke propoganda.

[ogradda]

9. Where do you work? n/t

[vpigrad]

13. CPA firm

The largest CPA firm in the county where I live. I'm the computer guy, but I have to do tax returns three months a year to help-out, like everyone else in the company. I do about 200 of the returns outside of work.

[ogradda]

14. lol i see.

I work for H&R Block. Yup, tax season is a busy time of year isn't it? :)

[vpigrad]

17. Ahhh...

So you're one of the Blockheads ;)

Just kidding, but we do make a good living off of charging people twice as much per hour to fix problems caused by H&R block as we do just for doing tax returns. I don't know if it's just the local H&R Block or a national problem, but they don't train their employees very well at all and have almost zero oversight. I just cringe when someone walks in and starts the conversation like this, "So I had my taxes done at H&R, then I received a letter from the IRS..." I hate trying to clean-up those messes, but we charge a lot for it and people will pay most anything to get the IRS off of their backs. We charge $75/hour for a bookkeeper's (anyone besides one of the CPA's) time to do that, and I make less than 10% of that. It sucks having someone else take over 90% of what you make for them. Oh well. Enough ranting.

[ogradda]

19. ouch!

hmmmm. well in our defense, we have a very low rate of mistakes and audits, and also we fix anything that needs fixing for free. so it's odd that you should say that. maybe where you are they aren't trained very well and don't have the guarantee.

[bain_sidhe]

16. Well, not according to ITEP

That is, the Institute on Taxation and Economic Policy. All the numbers for the graphs were taken from this report (pdf file, sorry): Federal Taxation of Earnings versus Investment Income in 2004 http://www.itepnet.org/earnan.pdf

Bear in mind though, in their model "investment income" includes 70% of retirement income, so they're talking about senior citizens as well as workers, as well as interest and capital gains.

*On edit: ITEP's site is here: http://www.itepnet.org/

[vpigrad]

18. Thanks

> includes 70% of retirement income

So that's how they're skewing the numbers. I knew something funny was up. We work hard for our retirement, so it isn't investment income.

[bain_sidhe]

34. Not sure about retirement not being investment income

in ITEP's model. If I understand their description of their methodology correctly (which I may not - it's not entirely clear to me) Social Security isn't included as "investment income" - it's included under "transfer payments" - a number I didn't include in my graphs. The description of how they categorized income is:

B. Categorizing reported income among earnings, investment income and transfers.

1. Earnings. As reported on tax returns, earnings include: wages; self-employment income from Schedule C (sole proprietorships), Schedule F (farm income) and Schedule E (the portion of partnership income reported as self-employment income); 30 percent of pension and IRA distributions; and unemployment compensation.

2. Investment income. As reported on tax returns, this includes: taxable interest; dividends; realized capital gains and losses; other gains and losses; Schedule E net investment income, i.e., rents, royalties, Subchapter S corporation profits, partnership profits (excluding the earned portion), and net income from estates and trusts; 70 percent of pension and IRA distributions; and net other income. Reported but unused tax losses were excluded. (Note that our figures do not include unrealized capital gains or other accrued but unrealized investment income.)

3. Transfers. For tax purposes, this is almost entirely taxable Social Security benefits. It also includes a very small amount for net alimony received less alimony payments deducted.

So it seems to me, they're only including interest on things like 401(k)s and IRAs in their "interest income" figure - i.e. actual private investments. Is that what you get from the description?

[alcuno]

47. If you make 1 mill on investments and I make 0, the average is 500 thou

That is what averages do.

[Killarney]

21. So, do people that make more than $87,900 RECEIVE SS payments

when they retire?

Since they don't pay into it, why should they get to take out of it?

Thanks for info.

[Billy Ruffian]

23. Wouldn't be good if you got your facts correct?

If you make more than $87,900 in wages, you pay FICA tax on the first $87,900. You pay 6.2% to Social Security, and 1.45% for Medicare. There is no cap for the Medicare.

Additionally, your employer also puts 6.2% into Social Security, and 1.45% into Medicare.

So, if you make $87,900 in wages, you pay $5449.80 to Social Security and $1274.55 to Medicare. Your employer pays the same.

If your wages are $200,000, you pay $5449.80 to Social Security and $2900 to Medicare. Your employer pays the same.

If you're self employed, the rates are 12.4% and 2.9%.

It's not unreasonable to say that the SS tax rate is 12.4%, and the Medicare rate is 2.9%, since the amount your employer pays is part of the cost of employing you. That money could be given to you, instead.

Finally, as someone else also pointed out, there is a cap on Social Security Benefits. Your benefit is based upon your wages and the number of quarters you paid into the system.

I suspect that if the cap on the wages taxed for Social Security was eliminated, without eliminating the cap on benefit paid out, high wage earners would start taking their compensation in ways that were not subject to SS withholding.

[Name removed]

24. Deleted message

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[Name removed]

27. Deleted message

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[Killarney]

29. So, anyone that asks a question on DU is a lazy loser?

You'll last a long time here with that attitude.

[Billy Ruffian]

32. I'll apologize.

I misinterpreted your original post, reading as asking why people who didn't pay in got benefits. I should have chosen a better title.

The information in the body of the post was, however, correct, and I hope, non-confrontational.

Google is still your friend ;-)

[Yupster]

36. They do pay into it

If a person made 88,000 per year and you made 22,000 per year, they would have paid four times more into the system than you did, but they would not even get twice as big a check as you did. The payout formula is very progressive.

If a person made 200,000, they would only pay ss premiums on the first 88,000 they make though which would still be four times what the 22,000 person paid in.

[Billy Ruffian]

37. Sample benefit calculator for SS retirement benefits

http://www.ssa.gov/planners/calculators.htm

You can choose a rough estimate, or a more detailed one based on your estimated earnings.

If you choose the rough estimate, and plug in 90,000 for current years income, you'll get one figure (based on age, etc) If you plug in 290,000, you'll get a higher figure, since the benefit does have a relationship to your payments. If you list 290,000 as your current year income, the payment calculations will assume that you'd met the cap for more years than if you put in 90,000.

[Killarney]

41. Thanks for the info.

:toast:

[Chalco]

25. I just retired but..

years ago the cap was 65,000 so when my income went over that I had more to live on/invest with each month. Then they raised the cap to 87,900 so more was taken out longer, then my income went above that and I got more to live on/invest again. When I retired I was making 105,000 which meant that the last 2 months of the year nothing was taken out for social security. It didn't make sense to me, but I always enjoyed the last 2 months of the year and having more money.

I do think that all income should be taxed for social security.

[AngryAmish]

28. Repubs will kill us if we propose raising the rates

1. Usual tax and spend dodge, but

2. The way SS is sold is as a retirement fund. One pays in a limited amount, one gets out a limited amount. Part of the deal is that it is not a welfare plan, but something everyone pays for.

[Chalco]

33. Then we'll just have to kill them back n/t

[Midlodemocrat]

38. For the sake of argument

...the withholding limit for 2005 is $90,000 and the maximum deduction is $5,580.00. Additionally, in order to receive SS when you retire, you have to have earned enough 'credits'. My SIL, who is a nutcase and a repug and 55 years old has worked so sporadically that she is currently not eligible and at the rate she is going might never be. Then, I guess she will have to turn to welfare. Also, just for the sake of argument, my father who always earned at least the maximum ss wage base throughout his career received $1,380 a month until he passed away this past year. He began receiving SS in 1995.

[spotbird]

42. The maximum benefit is $1,380?

I thought it was higher than that. I'll be darned.

[Midlodemocrat]

43. No that was for my dad

...who retired in '95. I think the max now is about $2600 or thereabouts. I can't lay my hands on the paperwork from my company, if I find it I will repost.

[Chalco]

44. Whatever the max is...

it's not enough to live on. You need something else. Don't count on social security. It's just an add on in my opinion. I retired at age 55 after working 31 years. So I wont get social security for several more years. I will only get 1400.

[bain_sidhe]

45. If she was married for 10 years, she qualifies

for a spousal benefit of 50% of what her spouse is entitled to. After he dies, she can choose either 100% of his benefit, or 100% of her benefit (if she has one).

This feature of Social Security, by the way, makes it even more incomprehensible that the reichwing wants to destroy it. Right now, it HELPS moms stay home with their kids. All of the privatization schemes I've seen would HURT stay at home moms.

[Midlodemocrat]

46. Oh, I know. She has never been married.

...never left her parents' house. A real RW nut job who specializes in sending hate mail to her family. Freak. I can't wait until she shows up at my door in about 5 years with no where to go. Sorry, that is very mean of me, but what she has put us through, I wouldn't wish on my worst enemy.