Social security deductions are taken out of the paycheck every month. Both the employer and employee pay an approximate 7.65 percent of the employee's earnings into Social Security. If a person is self-employed, 15.3 percent of his income should be paid into Social Security. The Internal Revenue Service allows part of the Social Security income of a self-employed individual to be deducted from his taxable income and this reduces tax liability.
Calculating Social Security Deductions
The Social Security deduction is capped and the ceiling is changed periodically. If the ceiling is set at $100,000, then an individual who makes less than $100,000 must pay Social Security on all his income, but an individual who makes more than $100,000 must pay Social Security only on the first $100,000 of his income.
Only 50 percent of the amount paid into Social Security can be deducted for tax purposes. In order to avoid overpayment, it's best to take the advice of an accountant as the fees of the accountant are well worth the savings generated by correct preparation of taxes. Alternatively, you can take the assistance of a Social Security withholding tax calculator which is a form that asks you several questions. Based on your answers, it gives you a withholding calculation.
It's best to ensure that you pay enough to Social Security in order to avoid a big bill from the government. You should know how to calculate your Social Security tax in order to pay the correct amount. Alternatively, you can download an online tax estimator that can help you calculate the correct amount you need to pay. Fifty percent of this amount can be deducted if you are self-employed.