Are we headed towards a payroll tax cut? If it's anything like the one in 2011, here's what it could look like.
Here’s how the payroll tax cuts worked. Wages and self-employment income are subject to Social Security and Medicare taxes. Together, Social Security and Medicare taxes are known as FICA taxes and are taken right out of your paycheck. Taxes on self-employment income are separately referred to as SECA taxes since self-employed persons pay both the employee and employer contributions.
Unlike Medicare, Social Security taxes are subject to a wage cap. In other words, you pay Social Security taxes on your earnings until you hit a magic number. After that, your wages are no longer subject to Social Security taxes. For 2019, that magic number is. That means that whether you make $1,000 or $100,000, you will pay Social Security taxes on that income. But if you earn $132,901? You'll pay Social Security taxes on $132,900, but not on the extra dollar.
Your employer collects those Social Security and Medicare payments and remits them to the government on your behalf . These taxes are sometimes referred to as “trust fund” taxes and are credited toward your retirement benefits.
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