I agree that corporations pay half of an employee's contribution. But payment of social security contributions is NOT the payment of a "tax" on income, and it's deductible, so I was just correcting the overstatement that "corporations are already taxed for paying Social Security benefits."
They are not "taxed" for paying social security i…
I agree that corporations pay half of an employee's contribution. But payment of social security contributions is NOT the payment of a "tax" on income, and it's deductible, so I was just correcting the overstatement that "corporations are already taxed for paying Social Security benefits."
They are not "taxed" for paying social security if they can deduct it as part of wages. And FICA is not at all dependent on corporate net income.
Just trying to help dispel a common misconception that a corporate employer's FICA contribution is the same as a tax on corporate income, as they are quite distinct.
Just a quick note - anything that's deductible from gross income or net income to arrive at net taxable income isn't "subject to income tax."
If the discussion is focused on income tax, then the millionaires who can hide or defer or legally avoid tax on their personal earnings are being disingenuous when they say they pay taxes when all they are referring to is FICA contributions or the tax withheld on their employees. Those really aren't "their" taxes - they are someone else's, and they are deductions from gross revenue or net income and hence never taxed as "net taxable income" at the corporate level. It's not just tax law but also basic accounting.
I would just say, in closing, that social security taxes and medicare taxes need to be expanded to include incomes at all levels. And so to emulate the European social democracies.
Actually, I agree that the cap on income subject to FICA contributions (taxes) should be raised or outright eliminated, so I think we're on the same page.
I just think it's important to remember that social security and Medicare (FICA) taxes are quite distinct from income tax.
FICA taxes are paid even when no income tax is due, e.g., when an individual has net taxable income below a certain amount or a net loss, whether becasue of small total earnings or because of carefully crafted tax avoidance schemes like Heather noted and that are referenced in her citation to the Guardian article. If I (hypothetically) make less than about 15,000 a year, basic deductions usually get the "hypothetical me" out of having to pay ANY income tax, and whatever got withheld for INCOME tax becomes my tax refund.
But there's no refund for FICA withholding that is taken out of my wages just because my earnings fell below the income threshold for INCOME tax.
One thing that I think is slightly mistated here is that somehow your tax refund is in any way relevant to your "tax". Tax refunds (with the exception of a few situations where tax credits are actually PAID to someone even if no tax has been withheld) are nothing more than the return of money that the taxpayer should have never paid. Tax refunds can, in most cases, be eliminated by simply adjusting your tax withholding. In the end, the result is IDENTICAL (almost) in that you will have paid in (after you get whatever refund is due) the exact same amount of tax. (I use the word almost because in fact if you overwithhold, you LOSE any benefit from interest you might earn on the withholdings and the government which now has your overpayment may actually earn some interest on that money until you claim your refund.
My point is that you should never really THINK about the "refund" because it is meaningless in terms of what you owe. It is merely the repayment of some money you have temporarily loaned to the government.
There is no refund on ANY tax owed, whether it is income tax or FICA. The monies go into different jars in the treasury, but in the end, they are both TAXES and should be considered as such. Bringing up tax "refunds" is just confusing the issue.
Maybe so, but only in rare cases does an employee ever get to claim a refund for over-withheld FICA contributions.
My point of course illustrated the difference between FICA and income tax - it had nothing to do with how many withholding exemptions one claims on a W-4. Suggestion: maybe instead of misdirecting the topic, please come up with an easier to understand illustration.
There are a lot of reasons one can have a refund aside from over-withholding, too. Net operating loss carry-back comes immediately to mind. It's not meaningless to think about a refund if you've overpaid for any reason, and a return by the government of overpaid taxes is, legally speaking, both semantically and technically a refund.
Also, I think beginning in the '80s corporations started paying their CEOs in stock options in lieu of huge salaries, and the stock options aren't taxed as far as I know, thus lowering their 'taxable income'. Taxes are probably paid on any capital gains when the recipient sells, but capital gains taxes have been slashed, too. I'm happy to be corrected if I don't have this right.
Well, ALMOST correct. Stock options aren't taxes UNTIL they are exercised. And there are two kinds of stock options, qualified and non-qualified. Non-qualified options are ALWAYS taxable when exercised. I.e., if you are given 1000 stock options at $1 a share and at some point the stock is worth $10 a share and you exercise and sell, you net $9 a share and you owe REGULAR TAX (not capital gains tax) on the $9 a share.
If you hold the shares of non-qualified options, you still have to pay the tax owed immediately. Most people just do what is called a same-day sale and exercise the options and immediately sell them typically for exactly the same price as they paid for the options. That generates the cash needed to pay the tax on the gain (from the $1 purchase to the $10 value).
Yes. The money employers pay into Social Security is treated by the employer (correctly) as part of the employee’s compensation. So, roughly 14% of the employee’s compensation goes for FICA taxes before the employee even starts to pay income taxes. The wealthy, on the other hand, employ capital gains tax rates and other loopholes to reduce their federal income taxes to an average of 14% of their entire income (including FICA, which because of the FICA tax cap at about $120K of income, is close to 0% of their total income). In other words, federal income taxes, rather than being progressive, are actually regressive when you compare what the wealthy pay to what median income wage earners pay.
Actually, even the money you pay into FICA is also taxed for federal income tax purposes. You do NOT get to exclude FICA from your taxable income, so you are paying the Social Security and Medicare taxes, and then paying income tax on that same amount. Your company (which matches the FICA taxes) gets to deduct the FICA tax from its income as a business expense (just as it deducts your salary payments from its income as a business expense). You however pay your income tax on your total earning INCLUDING the amount deducted for FICA. What is even more "interesting" is that when you are paid Social Security payments when you retire, you pay income tax on those payments too. So in some ways, the money used to cover your social security paymennts is taxed twice, once when it is paid to you when you earn your salary and then again when you get paid in retirement.
I recall Warren Buffet saying the woman who cleans his wastebasket pays a higher share of income as tax than he, and that without lawyerly legerdemain.
I agree that corporations pay half of an employee's contribution. But payment of social security contributions is NOT the payment of a "tax" on income, and it's deductible, so I was just correcting the overstatement that "corporations are already taxed for paying Social Security benefits."
They are not "taxed" for paying social security if they can deduct it as part of wages. And FICA is not at all dependent on corporate net income.
Just trying to help dispel a common misconception that a corporate employer's FICA contribution is the same as a tax on corporate income, as they are quite distinct.
Thanks. You know more about this than I do.
No problem -
Just a quick note - anything that's deductible from gross income or net income to arrive at net taxable income isn't "subject to income tax."
If the discussion is focused on income tax, then the millionaires who can hide or defer or legally avoid tax on their personal earnings are being disingenuous when they say they pay taxes when all they are referring to is FICA contributions or the tax withheld on their employees. Those really aren't "their" taxes - they are someone else's, and they are deductions from gross revenue or net income and hence never taxed as "net taxable income" at the corporate level. It's not just tax law but also basic accounting.
I would just say, in closing, that social security taxes and medicare taxes need to be expanded to include incomes at all levels. And so to emulate the European social democracies.
But I think you will disagree with this premise.
Actually, I agree that the cap on income subject to FICA contributions (taxes) should be raised or outright eliminated, so I think we're on the same page.
I just think it's important to remember that social security and Medicare (FICA) taxes are quite distinct from income tax.
FICA taxes are paid even when no income tax is due, e.g., when an individual has net taxable income below a certain amount or a net loss, whether becasue of small total earnings or because of carefully crafted tax avoidance schemes like Heather noted and that are referenced in her citation to the Guardian article. If I (hypothetically) make less than about 15,000 a year, basic deductions usually get the "hypothetical me" out of having to pay ANY income tax, and whatever got withheld for INCOME tax becomes my tax refund.
But there's no refund for FICA withholding that is taken out of my wages just because my earnings fell below the income threshold for INCOME tax.
Nice to hear someone who can differentiate, explain, and make sense
One thing that I think is slightly mistated here is that somehow your tax refund is in any way relevant to your "tax". Tax refunds (with the exception of a few situations where tax credits are actually PAID to someone even if no tax has been withheld) are nothing more than the return of money that the taxpayer should have never paid. Tax refunds can, in most cases, be eliminated by simply adjusting your tax withholding. In the end, the result is IDENTICAL (almost) in that you will have paid in (after you get whatever refund is due) the exact same amount of tax. (I use the word almost because in fact if you overwithhold, you LOSE any benefit from interest you might earn on the withholdings and the government which now has your overpayment may actually earn some interest on that money until you claim your refund.
My point is that you should never really THINK about the "refund" because it is meaningless in terms of what you owe. It is merely the repayment of some money you have temporarily loaned to the government.
There is no refund on ANY tax owed, whether it is income tax or FICA. The monies go into different jars in the treasury, but in the end, they are both TAXES and should be considered as such. Bringing up tax "refunds" is just confusing the issue.
Maybe so, but only in rare cases does an employee ever get to claim a refund for over-withheld FICA contributions.
My point of course illustrated the difference between FICA and income tax - it had nothing to do with how many withholding exemptions one claims on a W-4. Suggestion: maybe instead of misdirecting the topic, please come up with an easier to understand illustration.
There are a lot of reasons one can have a refund aside from over-withholding, too. Net operating loss carry-back comes immediately to mind. It's not meaningless to think about a refund if you've overpaid for any reason, and a return by the government of overpaid taxes is, legally speaking, both semantically and technically a refund.
Thank you, Steve.
Also, I think beginning in the '80s corporations started paying their CEOs in stock options in lieu of huge salaries, and the stock options aren't taxed as far as I know, thus lowering their 'taxable income'. Taxes are probably paid on any capital gains when the recipient sells, but capital gains taxes have been slashed, too. I'm happy to be corrected if I don't have this right.
Well, ALMOST correct. Stock options aren't taxes UNTIL they are exercised. And there are two kinds of stock options, qualified and non-qualified. Non-qualified options are ALWAYS taxable when exercised. I.e., if you are given 1000 stock options at $1 a share and at some point the stock is worth $10 a share and you exercise and sell, you net $9 a share and you owe REGULAR TAX (not capital gains tax) on the $9 a share.
If you hold the shares of non-qualified options, you still have to pay the tax owed immediately. Most people just do what is called a same-day sale and exercise the options and immediately sell them typically for exactly the same price as they paid for the options. That generates the cash needed to pay the tax on the gain (from the $1 purchase to the $10 value).
Thanks for clearing that up.
Lordy, my hero
Yes. The money employers pay into Social Security is treated by the employer (correctly) as part of the employee’s compensation. So, roughly 14% of the employee’s compensation goes for FICA taxes before the employee even starts to pay income taxes. The wealthy, on the other hand, employ capital gains tax rates and other loopholes to reduce their federal income taxes to an average of 14% of their entire income (including FICA, which because of the FICA tax cap at about $120K of income, is close to 0% of their total income). In other words, federal income taxes, rather than being progressive, are actually regressive when you compare what the wealthy pay to what median income wage earners pay.
Actually, even the money you pay into FICA is also taxed for federal income tax purposes. You do NOT get to exclude FICA from your taxable income, so you are paying the Social Security and Medicare taxes, and then paying income tax on that same amount. Your company (which matches the FICA taxes) gets to deduct the FICA tax from its income as a business expense (just as it deducts your salary payments from its income as a business expense). You however pay your income tax on your total earning INCLUDING the amount deducted for FICA. What is even more "interesting" is that when you are paid Social Security payments when you retire, you pay income tax on those payments too. So in some ways, the money used to cover your social security paymennts is taxed twice, once when it is paid to you when you earn your salary and then again when you get paid in retirement.
Yes.
I recall Warren Buffet saying the woman who cleans his wastebasket pays a higher share of income as tax than he, and that without lawyerly legerdemain.