With each paycheck, you pay into your Social Security account, which is the amount you see listed as FICA. Short for the Federal Insurance Contributions Act, FICA is designed to ensure every American sets some money aside for retirement, but there’s a cap on taxable income. In 2019, $132,900 of your earnings will be subject to Social Security tax, but if you’re married filing jointly, there may be an additional Medicare tax that will apply to you.
For 2019, you’ll only pay Social Security tax on the first $132,900 you earn. If you’re married filing jointly, you’ll be responsible for an additional 0.9 percent in Medicare tax for the amount you both earned over $250,000.
Social Security and Payroll Tax
Social Security is designed to be an individual thing, whether you file jointly or separately. Payroll tax will be applied to every paycheck you earn throughout the year, and at tax time the Internal Revenue Service will make sure you paid in enough. If you’re married filing jointly, the Social Security cap will be applied to each salary separately. However, there is an additional Medicare tax that will be based on your household income.
If you’re employed, your earnings are subject to a 15.3 percent payroll tax. Half of this is paid by you, and the other half comes from your employer. This tax includes 12.4 percent for Social Security and another 2.9 percent for Medicare. But if you’re a high earner, there’s a limit as to how much tax you’ll pay each year.
Social Security Cap for 2019
For those earning more than $100,000 a year, it’s important to pay close attention to the FICA cap, which can vary from one year to the next. In 2018, your Social Security tax only applied to the first $128,400 of your earnings, but that increases to $132,900 for the 2019 tax year. If you and your spouse earn $150,000 apiece, each of you will only pay Social Security tax on the first $132,900 of your earnings.
However, although the Social Security tax rate has an individual cap, there’s an additional 2.9 percent in Medicare tax that is applied to both of you, assuming you’re married filing jointly. If together, you and your spouse earn $250,000 or more, you’ll pay an additional 0.9 percent in Medicare tax on the excess. For single filers, the 0.9 percent tax applies to every dollar over $200,000.
Refund for Social Security Tax
Payroll taxes are applied to your paycheck at the current Social Security tax rate throughout the year, with your employer usually trying to avoid withholding too much. However, your earnings may not come from one source. For instance, if you make $90,000 with your employer and an additional $50,000 from a side gig, your employer won’t know that you’ve exceeded the cap.
If your earnings exceeded the FICA cap and were still taxed, you’ll be eligible for a refund when you file your taxes. You’ll get started on applying for this refund by inputting the excess amount on Line 72 of Form 1040, Schedule 5. You can only request a refund if the excess withheld is greater than $7,960.80 for the 2018 tax year. For the 2019 year, the refund will kick in if the amount exceeds $8,239.80. Your employer should adjust the tax but if he doesn’t, you can use Form 843 to request it.
Self-Employed and Social Security
If you were self-employed and didn’t have your FICA tax withheld through a paycheck, you’ll pay the full 15.3 percent yourself. On your tax return, you’ll see this listed as self-employment tax and, like salaried employees, you’ll only be taxed up to the Social Security earnings cap. The caps and excess Medicare tax are the same if you’re self-employed – the difference is that you’ll be responsible for ensuring you’re paying it.
When you file your taxes, if you didn’t pay enough tax in during the year, you’ll owe the full amount at the current Medicare and Social Security tax rate. Additionally, you may be responsible for penalties on the amount you didn’t pay during the year. To offset this, self-employed individuals are encouraged to file quarterly estimated taxes, paying in throughout the year based on how much they expect to owe in April.
Stephanie Faris has written about finance for entrepreneurs and marketing firms since 2013. She spent nearly a year as a ghostwriter for a credit card processing service and has ghostwritten about finance for numerous marketing firms and entrepreneurs. Her work has appeared on The Motley Fool, MoneyGeek, Ecommerce Insiders, GoBankingRates, and ThriveBy30.