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No More Social Security Tax Payment in 2006!

Contributed by mm | July 27, 2006 10:02 AM PST

I was checking my paystub for July and just realized that my social security tax payment for the month declined substantially from previous months' levels. Year to date, I have contributed $5,840.40 to the social security program, or the annual maximum ($94,200 income taxed at 6.2% rate). This means starting in August, my monthly take-home pay from my day job will be $900 higher than what I got each month in the first half of 2006.

Does it mean I am one step closer to achieve my annual net worth goal?

This Post Has Received 11 Comments. Share Your Opinions Too.


Cody McKibben Commented on July 28, 2006

How did you get your Social Security contributions to go down? As a young professional, I live in constant fear that I am contributing money to a retirement pension that I will never see again. Are there legal ways to avoid this?


CPA1298 Commented on July 29, 2006

Cody - Social Security tax is only imposed on the first $94,200 of earned income. MM has already reached that income level at this point in the year (wow!); for the rest of the year he will only be paying the Medicare tax of 1.45% on his income. This is why the Social Security tax is a 'regressive' tax; unlike nearly every other income-based tax, it hits those at lower income tax brackets harder. That is, for many low-income individuals, this is the only income tax they pay.

I'm not at all saying this is wrong, but it is an interesting divergence from the rest of the income-tax structure.


Anonymous Commented on July 29, 2006

Do you realize you are giving away your income information (or at least a lower bound)?


fatboy Commented on July 29, 2006

Anonymous, loyal readers of PFBlog will have already known MM makes six figures.


Cody McKibben Commented on July 30, 2006

Thanks for the info CPA! Interesting.

Anyone know if there ARE legal ways to get out of paying Social Security though? Since you are supposedly just paying to a state pension fund for yourself, I would much rather put it into my own more aggressive 401(k) or a Roth IRA. I've heard of companies that somehow legally get you out of SS payments... I know it sounds shady, but I was just curious if it's really possible.


20BigOnes Commented on August 1, 2006

Cody,

When you have money taken out for Social Security, you are not paying to a state pension fund for yourself. It is going to a federal fund for current retirees -- not a personal fund for yourself. You are relying on future generations to cover your Social Security income in retirement.


Geoff B Commented on August 4, 2006

And therein lies the problem. I'm sure many of us would like to do our own investing.. perhaps Mr Buffett should manage the federal fund.


Robert Commented on August 31, 2006

Do you know how if you take a new position mid-year the new company will know to stop your FICA payments after income from the first + new company hits the 94200 mark? Thanks...


Darien Ramon Commented on December 31, 2006

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