The Social Security tax and Medicare tax apply to earned income, such as employee income and self-employment income. For people who work as employees, these taxes are withheld from their paychecks, while self-employed people have to make estimated tax payments throughout the year. The federal tax code does allow you to deduct some taxes when you file your federal tax return, such as state and local income or sales taxes, real estate taxes and property taxes, but there isn’t a deduction for Social Security taxes or Medicare taxes. But, in certain situations, you might be entitled to a refund when you’ve paid too much in Social Security taxes during the year.
TL;DR (Too Long; Didn't Read)
You generally aren’t allowed to deduct Social Security taxes withheld from your paycheck on your income tax return, but if you are self-employed, you can claim a deduction for a portion of your Social Security taxes paid.
Social Security Deductions From Check
The Social Security tax deductions from your paycheck represent the employee portion of the Social Security tax. These deductions are calculated based on your total paycheck, even if you have some pretax expenses taken out like contributions to a 401(k) plan or medical insurance premiums you pay or expenses that will qualify you for a tax write-off when you file your return. Except in limited circumstances where too much money has been withheld for your Social Security taxes, you aren’t allowed to claim an income tax deduction for the Social Security taxes withheld from your earnings as an employee.
However, the Social Security tax only applies to a certain amount of your earned income each year, known as the Social Security Contribution and Benefit Base. Once you have paid taxes on this amount of income, you’re not liable for any additional Social Security taxes that year. The Contribution and Benefit Base is per person, so even if you’re married filing jointly, each spouse’s limit is calculated separately. The Medicare portion of the FICA taxes has no limit on how much income it applies to each year.
Employer Portion of Social Security Tax
The portion of the Social Security tax paid by your employer isn’t included in your taxable income, even though it’s another cost that your employer pays on your behalf for the work that you’re doing, which saves you more money on your taxes. For example, say that you make $92,000. Both you and your employer will pay 6.2 percent of that amount, or $5,704, in Social Security taxes and 1.45 percent of that amount, or $1,334, in Medicare taxes. However, the $7,038 that your employer pays the government for its portion of the FICA taxes on your wages doesn’t get added to your taxable income.
When you’re self-employed, the tax story is a bit different. Instead of FICA taxes, your net self-employment income is subject to self-employment taxes, which equal the full amount of FICA taxes. Because you’re considered both the employer and the employee, you must pay the entire 12.4 percent Social Security tax and 2.9 percent Medicare tax yourself. However, the tax code does make a few tweaks to account for the differences in how the employer portion of the taxes is treated.
First, you only pay the self-employment tax on 92.35 percent of your net self-employment income, which accounts for the fact that when employees pay FICA taxes, those taxes aren’t calculated on the amount of money that the employer pays in FICA taxes on their behalf. Second, when you calculate your income taxes, you can claim an adjustment to income equal to the employer portion of the self-employment taxes you pay. Because it’s an adjustment to income, you can take the deduction even if you don’t itemize.
For example, if your net self-employment income is $81,000, you would only pay the self-employment taxes on $74,803.50. The combined Social Security tax and Medicare tax portions of the self-employment tax equal 15.3 percent, so your self-employment tax would be $11,444.94. But, when you file your income taxes, you can claim a deduction equal to half of those taxes, or $5,722.47, as the part your employer would have paid if you were an employee rather than working for yourself.
Is Social Security Tax Taken Out Before 401(k)?
If you make contributions to your 401(k) plan through your employer, those contributions are excluded from the amount subject to federal income tax. However, your contributions are still subject to FICA taxes, including the Social Security tax and the Medicare tax. For example, say your salary is $78,000, and you contribute $6,000 to your traditional 401(k) plan. When you file your income taxes for the year, your Form W-2 will only show $72,000 of wages subject to income tax, but $78,000 of wages subject to the Social Security tax.
Contributions your employer makes to your 401(k) plan on your behalf, on the other hand, are exempt from the Social Security and Medicare taxes. These contributions must always be made to a traditional 401(k) account, so they are also exempt from income taxes. Employers may automatically make contributions to your 401(k) plan calculated on a percentage of your salary or may match a certain amount or percentage of the contributions you make to your 401(k) plan.
For example, say your employer contributes $3,000 to your 401(k) plan on your behalf. That $3,000 is exempt from both income taxes and FICA taxes, including the Social Security tax. Assuming that $3,000 wouldn’t put you over the Contribution and Benefit Base for the year, not having that $3,000 hit with FICA taxes saves each of you and your employer $186 in Social Security taxes and $43.50 in Medicare taxes.
Excess Social Security Withheld
Because of the Contribution and Benefit Base, there is a maximum amount of money that you are required to pay in Social Security taxes each year. If you pay in more than that amount for Social Security taxes, you are entitled to get the excess back, but it won’t always be through a refund from the IRS.
If you work for one employer and it continues to withhold Social Security tax from your paycheck even after you’ve reached the Social Security Contribution and Benefit Base for the year, you must ask your employer for a refund rather than claiming the excess withholding. If your employer refuses to refund the excess withheld, file Form 843 to claim a refund.
For example, say you work for one company and earn a total of $135,400. If your employer withholds Social Security tax on the entire salary, $7,000 over what you should have paid in 2018, you have paid an extra $434 on Social Security taxes. But, instead of claiming that as a tax credit, you have to first ask your employer for a refund of that money. If your employer doesn't give you a refund, you can file Form 843 with your taxes to claim a refund of the excess withholding.
You are entitled to claim a refund on your income taxes for excess Social Security tax withholding when you work multiple jobs and as a result, too much is withheld. When you work multiple jobs, your employers don’t talk to each other to find out how much you're making from your other employers. So, each employer is required to withhold Social Security taxes from your paycheck until you reach the Contribution and Benefit Base for the year. However, that can result in too much being withheld.
For example, say one job pays you a $123,000 salary per year. Then, on the side, you work another job that pays you $30,400 per year. Because neither job pays you more than the Social Security Contribution and Benefit Base, which is $128,400 as of 2018, each employer will withhold Social Security taxes from your entire paycheck. But, because your combined earned income is $153,400, $25,000 over the Contribution and Benefit Base, you’ll pay more Social Security taxes than is required.
To get that excess withholding back, you claim a refund on your tax return. In this example, because you had 6.2 percent withheld on an extra $25,000, you paid $1,550 extra in Social Security taxes. On your tax return, you will receive that amount as a tax credit, reducing what you owe or increasing your refund for the year.
Employee and Self-Employment Income
If you have both employee income and self-employment income, the Contribution and Benefit Base for Social Security is applied cumulatively to all of your income. If your total earned income exceeds the Contribution and Benefit Base, the Social Security tax is paid out of your employment income first. Only after all of your employment income has been taxed does the Social Security portion of the self-employment tax kick in.
For example, say that you earn $114,000 in salary from your day job. But, during the evenings you have your own business that brings in another $24,400. When calculating where your Social Security tax is paid from, use your salary first. Given that the Contribution and Benefit Base is $128,400 in 2018, only the first $14,400 of your self-employment income is hit with the Social Security tax. The last $10,000, which is in excess of the Contribution and Benefit Base, is only subject to the 2.9 percent Medicare tax portion of self-employment taxes.
Student Exception to the Social Security Tax
The tax code contains a few exceptions for earned income that isn’t subject to the Social Security tax. First, if you work at a college or university where you are primarily a student, you won’t have FICA taxes withheld from your wages. For example, say you’re studying full-time to get your bachelor’s degree, but to help finance your education, you participate in a work-study program where you serve as a resident assistant in the dorms for underclassmen. The payment you receive for that work won’t be subject to FICA taxes because your primary relationship with the school is as a student. On the flip side, if you work in administration at a school, and occasionally take or audit classes as a perk of your job, your wages won’t be exempt because your primary relationship with the school is as an employee.
Is Medicare Tax Deductible?
The Medicare taxes are also not deductible from your federal income taxes. There isn’t a cap on the amount of earned income subject to the Medicare tax like there is for Social Security, so you won’t have too much withheld and won’t need to claim a refund.
2018 Contribution and Benefit Base
The Contribution and Benefit Base adjusts annually for inflation. In 2018, it went up $1,200 to $128,400. However, the Social Security tax rate stayed the same; 12.4 percent total, which is split equally at 6.2 percent for the employee and the employer.
2017 Contribution and Benefit Base
In 2017, the Contribution and Benefit Base was $127,200, an increase of $8,700 over the previous year. Part of the reason for the large jump is that the Contribution and Benefit Base did not increase at all from 2015 to 2016.
Based in the Kansas City area, Mike specializes in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."