As we wrap up the 2018 tax season, it’s important to keep our eyes focused on what’s ahead. As we’ve mentioned in previous articles, this year has been marked by extensive tax reform. One new adjustment which often falls through the cracks is the change to social security taxation. Whether you are an employee or a business owner, this new revision stands to make an impact on your bottom line.
Here’s a recap:
What Is The Social Security Tax
The Social Security Administration is responsible for helping provided for individuals who cannot otherwise attain gainful employment to pay for a significant portion of their bills. Because of this need, the government introduced old age, survivors, and disability insurance, also known as OASDI. This program in specific is directly taxpayer-funded, through payments determined by how much an individual makes, and how much the company pays out. Typically, employers and employees split the tax, each covering 6.2% of the overall 12.4% rate on payroll. The limit on taxable income is capped every year, to limit over taxation for individuals making above-average salaries.
The IRS has recently announced that the aforementioned taxable income cap has been raised for fiscal year 2019. Moving forward, the OASDI tax will be legitimate for any income up to a $132,900 threshold. The tax rate itself will stay the same. If you’re making below this amount, then your yearly contribution will largely remain unchanged. However, if you are at the upper limits of the listed income ceiling, you stand to have an additional $4,500 worth of taxable income available for the IRS to levy. While this may not sound significant at first, consider the situation if you are an independent contractor. Because of your employment status, you would need to pay the full 12.4% tax burden on your own, for a higher income valuation.
Tax law changes over time, and changes like this are hardly extraordinary. That doesn’t mean, however, that they should be ignored. In order to keep as much of your paycheck as possible, it’s crucial to partner with a seasoned accounting professional. Start a conversation with our office, we’d be happy to help walk through your goals and options.