It's useful to remember that the federal government operates two taxation systems, both administered by the Internal Revenue Service. The IRS collects federal income tax as well as Federal Insurance Contributions Act payroll tax, which funds the Social Security and Medicare insurance programs. For the income tax, the IRS allows you to deduct certain expenses, including some other taxes that you pay.
On your annual income tax return, you may take certain deductions, including state and local income taxes, foreign income taxes, property taxes, sales taxes and vehicle taxes. In order to deduct these taxes, you must itemize your deductions -- you cannot take the standard deduction and also write off tax payments. Also, you can only deduct taxes that you actually paid during the year. You may not add in additional tax payments made in the following year for the previous year.
The payroll taxes withheld from your wages are not deductible, either from federal or any state income tax. For the year 2012, the Social Security payroll tax rate stood at 4.2 percent for employees, and 6.2 percent for employers. If you are self-employed, you pay both employee and employer shares through self-employment taxes, which you calculate using Form 1040, Schedule SE. The money funds the Social Security trust account, which is used to pay retirement and disability benefits to qualified applicants.
Additional Child Tax Credit
Taxpayers who qualify for the additional child tax credit may indirectly deduct Social Security taxes under certain circumstances. In order to qualify for the additional child tax credit, you must have a qualifying child and meet the guidelines for the original child tax credit. If you have not earned enough income for the full original credit of $1,000, you may claim the additional child tax credit to make up the difference. If you have not earned more than $3,000 during the year, and have three or more dependents, you claim the additional child tax credit up to the amount of Social Security payroll taxes you paid. You must subtract the amount of the earned income credit, if you qualified for it.
Excess Payroll Tax
In some cases, employees may pay excess payroll tax. This arises from the wage base limit, which is the maximum amount of income you must pay Social Security taxes on every year. In 2012, the wage base limit stood at $110,100. If you change jobs, and your second employer continues to withhold even after your annual income has exceeded $110,100, you are paying excess payroll tax. If you don't owe any federal income taxes with your annual return, the IRS will allow you to take the excess payroll taxes as a tax credit. Otherwise, the excess payroll tax is applied to your income tax obligation.
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- Figuring Out Payroll Taxes for Someone's Salary
- Do Household Employees Pay a Self Employment Tax?
- What Is State Withholding Tax?
- Can I Claim FICA Deductions on Personal Income Tax?
- What Are FUI Taxes?