Social Security taxes have been and remain a scandalous burden if you make money by the sweat of your brow.
First, the basic rules: Social Security taxes are imposed not only on employees and employers, but on self-employed individuals as well. The FICA rate on employers is 7.65 percent; the same rate applies to employees; and the self-employment rate is 15.3 percent.
The total 7.65 percent for FICA taxes has two components: 6.2 percent is Social Security tax and 1.45 percent is the Medicare hospital insurance tax (MHIT). The equivalent figures for self-employment tax (total of 15.3 percent) are 12.4 percent for Social Security and 2.9 percent for MHIT.
The Social Security tax is collected based on salary or self-employment income (a $68,400 ceiling for 1998). The ceiling is adjusted annually for inflation. There is no ceiling on the MHIT.
Now let's crunch the numbers for 1999, using the higher Social Security tax ceiling of $72,600, and determine the cost to the employer for an employee (call her Kay) earning $100,000.
- $72,600 × 6.2% = $4,501.20
- $100,000 × 1.45% =
And don't forget, Kay gets hit for the same amount. Let's see, that's $5,951.20 each for the employer and Kay, or a total of $11,902.40 for both. Outrageous! And remember, the HMIT (I call it the "maximum hit") of 2.9 percent (1.45 percent times 2) never stops.
Are you self-employed? The results are a total tax disaster. Why? You, and you alone, must pay the entire tax. For example, the tax for self-employed business owner (not incorporated) earning $100,000 is the same as for Kay and her employer combined: a thief-in-the-night amount of $11,902.40. There is one ray of sunshine in all this. You can deduct one-half of the Self Employment tax. Refer to Section 164(f) of the Internal Revenue Code.
Going On A Business Trip (With Your Spouse)? . . . Read This First
The current tax law—unless you meet very strict rules—denies you a deduction for even one penny when your spouse accompanies you on a business trip.
Follow these three rules and the tax man pays for a large part of your trip:
- You can deduct the full cost of a single hotel room even if a double room costs only a few dollars more.
- You can deduct the full cost of a single airfare, even though your spouse's ticket costs only slightly more because of a family-fare discount you received.
- You can deduct the full cost of renting a car at your destination. You don't even have to account for your spouse's casual use of the car.
The result of these three little tax tricks is that you can deduct the same amount you would have deducted if you traveled alone.
And one more neat little tax trick: Often you can deduct business meals, including your spouse's, when your spouse accompanies you on a business trip. For example, at your destination you pay for a business meal while entertaining a business associate (say a customer) and the customer's spouse. Because the customer's spouse is there, your spouse can attend too on a business basis. Of course, only 50 percent of the entire tab and tip is deductible under the 50 percent limitation rule for entertainment and meal expenditures.