Social Security Tax Cap
The 2011 Social Security Tax Cap earned income is $106,800. As you may or may not be aware, Social Security taxes are capped. What this means is that your employees only have to pay the tax through their paycheck on their earned income up to a certain threshold.
Social Security Income Threshold
The Social Security tax paid by the employee and employer is equally paid at 6.2% of the gross earnings. If your employees earn more than $106,800 they will only be taxed on the $106,800. This means that they'll have to pay Social Security taxes on their first $106,800 in earned income. Each of your employee's total tax paid at the end of the year would be $6,621.60. Beyond that, their Social Security obligation will be zero, and they only have to pay the Medicare portion of the FICA taxes.
By law, some numbers change automatically each year to keep the program up to date with price and wage levels. The 2011 Social Security Tax Cap has remained unchanged from 2009.
Under federal law, people who are receiving Social Security benefits who have not reached full retirement age are entitled to receive all of their benefits as long as their earnings are under the limits set forth. For people born in 1943 - 1954, the full retirement age is 66. The full retirement age will increase gradually each year until it reaches age 67 for people born in 1960 or later.
Social Security and Retirement Income Limits
At full retirement age there is no limit on earnings. However, there are limits in place if you are under full retirement age. If your employee earns more than $14,160, for every $2.00 over the limit, $1.00 will be deducted from their benefit. The year that your employee reaches full retirement age, the limit increases to $37,680 and for every $3 over the limit, $1 is withheld from benefits until the month they reach full retirement age.
Payroll taxes and employee benefits are the responsibility of you,the employer. Understanding and knowing how to process your payroll is crucial to your business employees.
I would suggest using an QuickBooks Payroll service to help reduce your stress when it comes to the accuracy of processing payroll and the appropriate taxes.
For more information on the 2011 Social Security Tax Cap, visit QuickBooks Online today!
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