Social Security Max Increases To $94,200 for
2006
by Stacy Gillis
The Social Security Administration recently
announced an increase of 4.7% in the maximum social
security taxes you can pay for 2006.
Woburn, MA (PRWEB) November 9, 2005 -- The maximum
wage base you can be taxed on for 2006 rose $4,200, from
$90,000 to $94,200. Each year, the government bumps up
the maximum social security taxes that you can pay.
“At a rate of 6.2%, the maximum social security
taxes that your employer will withhold from your salary
increases by $260.40, from $5,580.00 in 2005 to
$5,840.40 in 2006. In addition, your employer also
withholds Medicare taxes from your pay at a rate of
1.45%. There is no limit on your wages subject to this
tax,” said Andrew Schwartz, founder of LawyerTaxes.com,
an affiliation of CPAs throughout the country that
specializes in tax planning and preparation for
lawyers.
Calculating the Self-employment
Tax
If you're self-employed, you're subject to social
security and Medicare taxes as well. Known as the
"self-employment tax", you'll need to complete a
Schedule SE to calculate this tax, and then report the
amount due on page 2 of your Form 1040.
The
self-employment tax is based on a social security tax
rate of 12.4% and a Medicare tax rate of 2.9%. These
rates are double those paid by employees, since a
self-employed person must pay both the employee's
portion and the employer's portion of both taxes.
Remember, when you work as an employee, your employer
matches the social security and Medicare taxes withheld
from your pay.
Don’t Overpay
”Unlike most
other taxes, when dealing with self-employment taxes,
the more you earn, the less you pay in taxes,” said
Schwartz. If you earn income as an employee and as an
independent contractor, and your combined income exceeds
$90,000 in 2005, make sure to complete Section B of the
Schedule SE. Otherwise, your tax calculation will be
incorrect and you'll end up overpaying your
self-employment taxes.
If Have You Worked For
More Than One Employer and Earned Over $90,000
For
2005, each of your employers will withhold social
security taxes from the first $90,000 that you earn from
them. If you work for more than one employer and your
total salary from all sources exceeds that threshold,
you'll have excess social security taxes withheld. Make
sure to claim a credit for these excess taxes on your
1040 as additional federal taxes paid in.
Here’s
How It Works
Let’s say you work for two employers and
earn $75,000 from each employer. Employer #1 will
withhold $4,650 in social security taxes ($75,000 *
6.2%). Employer #2 will also withhold $4,650 in social
security taxes – for a total of $9,300 in social
security taxes withheld during the year. Since the
maximum social security taxes that you should pay
through payroll withholdings for 2005 is limited to
$5,580.00, the excess of $3,720.00 counts as additional
federal income taxes paid in by you.
A) Social
security taxes withheld by Employer #1
$4,650.00
B) Social security taxes withheld by
Employer #2 $4,650.00
C) Total
social security taxes withheld during the year
(A+B) $9,300.00
D) Social security
max for 2005 $5,580.00
E) Excess
social security taxes withheld (C-D)
$3,720.00
Website Resources
”A great place to
find out more about your social security taxes and
projected benefits is at the Social Security
Administration's website located at www.ssa.gov.
For the very latest tax and financial planning
information to meet the unique needs of lawyers, visit
www.LawyerTaxes.com,” explained
Schwartz.
Andrew Schwartz, CPA, is the founder of
CPA Niche, a national network of CPAs. He is the editor
and a major contributor to www.LawyerTaxes.com, a website that
provides income tax and financial planning information
geared towards lawyers. Schwartz has appeared on CNBC's
Money Club. He is available for interviews.
http://www.LawyerTaxes.com
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