Dave Ramsey’s 9 Social Security Tax Facts You Need To Know — Get ‘Ready for Some Good News’
Written by
Dawn Allcot
Edited by
Daria Uhlig
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The Fed interest rate hike and the appointment of a new Social Security commissioner could be causing concerns for those on a fixed income. But financial expert Dave Ramsey says there is some good news for people to focus on when it comes to Social Security benefits and taxes, whether you are working or already retired.
Your Employer Matches What You Pay Into Social Security Taxes
You pay into the Social Security fund through payroll taxes. These Federal Insurance Contributions Act (FICA) taxes total 15.3% of most of your paycheck, with 12.4% going toward Social Security. Fortunately, though, your employer covers 6.2%, or half of the total amount.
Self-Employed People Can Deduct a Portion of Their Social Security Taxes
People who are 1099 contractors and file as self-employed are responsible for paying the full amount of their Social Security taxes. But you can deduct 6.2% — the amount your employer would normally pay — on your tax returns.
Your Entire Paycheck May Not Be Taxed
On the topic of Social Security and your paycheck, you may not have to pay Social Security taxes on your entire salary. You only pay Social Security taxes on the first $160,200 of your income for 2023. If you earn more than this “taxable maximum,” you will only pay $9,932.40 into Social Security and your employer would also pay that amount on your behalf.
You Can Begin Collecting Social Security at Age 62
A recent Gallup poll reported by GOBankingRates found the average retirement age in the U.S. to be 61 years old. That’s good news, because if you retire at 61, you only have to wait one year to begin collecting your Social Security benefits. Keep in mind, your check will only be 70% of your full benefit.
If You Wait Until Full Retirement Age, You Can Collect a Bigger Social Security Check
Those who are able to continuing working, especially with a higher salary than they earned in their younger years, may find it pays off in the long run. If you can wait until full retirement age, you can collect 100% of your benefits. In 2023, full retirement age for people born in 1960 or later occurs at age 67.
You Can Receive Even More Money If You Wait Until Age 70 To File for Social Security
If you can hold off until age 70 to claim Social Security benefits, you’ll receive 132% of your benefits.
You May Not Have To Pay Taxes on Your Social Security Benefits
If Social Security is your sole or primary source of income in retirement, it’s likely you won’t have to pay federal income taxes on your benefits. If you have less than $25,000 in income from other sources — including part-time jobs, contract work, real estate or investments — and you file individually ($32,000 for married couples filing jointly), you don’t have to pay tax on your Social Security income. You may have to pay tax on your other sources of income, however.
You Will Never Pay Tax on More Than 85% of Your Benefits
The federal government doesn’t collect tax on anything over 85% of your Social Security benefits. Depending on your income from other sources combined with Social Security, that 15% that isn’t factored into your gross income (before adjustments) can save you money.
A Tax Expert Can Help You Minimize Your Tax Bill
If you are concerned about owing taxes in retirement, speak to a tax professional. You can make quarterly payments if you owe money on your Social Security income or even request to have federal income taxes withheld from your Social Security check.
If you’re earning additional income from investments or side gigs, a tax professional can help you find legal business deductions or use strategies like tax loss harvesting to help you pay less taxes in retirement.
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