Tax Guy: How will inflation affect your Social Security tax bill? It’s not pretty

by | Jul 21, 2022 | Stock Market

Employers, employees, and self-employed individuals all pay the Social Security tax. For many self-employed individuals, the tax equals or exceeds their federal income tax bill. And yet, the Social Security tax gets little attention. And what about the impact of inflation? Let’s discuss. 

How big can my Social Security tax bill be? Probably a lot bigger than you think. As an employee, your wages are hit with the 12.4% Social Security tax up to the annual wage ceiling. Half the Social Security tax bill (equal to 6.2%) is withheld from your paychecks. The other half (also 6.2%) is paid by your employer, so you never actually see the second half. Unless you understand how the Social Security tax works and closely examine your pay statements, you may be blissfully unaware of how much the tax actually costs. Potentially a lot! Here’s why. The Social Security tax wage ceiling for 2022 is $147,000. If your wages meet or exceed this year’s ceiling, the Social Security tax hit for this year will be a whopping $18,228 (12.4% x $147,000 = $18,228). Ouch. Half of that comes out of your paychecks. Your employer pays the other half.  The wage ce …

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